Negative Gearing – Why Boomers and Gen X Need to Let It Go

Guest Author Uncategorized

A blog I enjoy, but don’t visit often enough, is The Preston Institute. The author, PrestonTowers, has qualities I appreciate, including insight and quirkiness. The piece I am republishing today was written a couple of weeks ago. PrestonTowers’ analysis of negative gearing – with lived experience – is definitely worth reading.

The Preston Institute

There’s been a great deal of chatter about negative gearing in the wake of the new ALP policy in relation to the tax break. It’s a brave thing for the ALP to take on a policy instrument that is essentially middle class welfare, making it easier for those with some means to get into Australia’s wildly over inflated housing market. But it’s a necessary move, in order to address a gross generational inequality and help out the Australian construction and steel making industries.

In terms of the issue of negative gearing, I am part of the audience being pitched to by both major parties. I am someone who uses negative gearing. As I wrote in my post about selling my old flat, I have, for the first time, bought somewhere purely as an investment. I also – completely by chance – have fallen into the pattern that the ALP want investors to follow, as in purchasing a new property. Hence I will be able to take advantage of the taxable reduction afforded by depreciation on that new property, as well as other benefits that will come with the reduction of my taxable income. Reflecting on the process of buying the new property, I can see the advantages of Labor’s plan to have people being encouraged to buy new housing stock and making it available to tenants – as well as keeping the other benefits of negative gearing.

Where the problem is negative gearing, however, is that there’s something questionable with the current system where people are encouraged to buy existing properties, rent them out until they accumulate in value, sell, and gain a 50% discount on the Capital Gains Tax made on the property. It’s a pretty sweet, low risk deal, especially if the rental yields are low and you can reduce personal income tax to well below Scott Morrison’s magic $80,000 figure. From my personal experience, it encourages the type of investor frenzy caused by the selling of Preston Towers.

My old flat in South Penrith should be the type of place that would be perfect for first home owners. It’s 30 years old, with no depreciation potential. It’s close to shops, schools and public transport. It’s also small, in the middle of an area filled with apartment blocks of varying ages and should be cheap, as it was for me as a first home owner in 2009. I did ask my real estate agent during the process the type of people who would be buying the property – I was thinking of the tenants, who had taken great care of the property, but were also of Indian heritage, which may have made finding another property in Penrith difficult (I remember being asked when I was renting out the property whether “it was ok that they were Indian”). It was made very clear to me early on that only investors would be in the market for it, as only they had the means necessary for an offer battle.

So it came to pass. On the day of the first open home, there were multiple offers, and at prices I could barely believe. The “winner” was a baby boomer investor using superannuation proceeds. So that small flat will continue to be a rental, out of reach to first home owners, as will any other property in that area. There will be negative gearing, as the price that was paid cannot be covered by the rent for that area for some time. Under the current system, whenever the market goes up again in the same way it did between 2013 – 2015, the investor will sell, pocket the half of the gap with the discount and move onto somewhere else, denying even more first home owners a chance for a foot in the door. With the ALP system, the owner will be forced to be very sure that he is ready to shift his investment to new housing stock, with its reduction of the CGT discount. Or he will just hang onto the current place under the grandfathering provisions and be happy with the rental returns and reduction in taxable income – one day still being able to pocket the CGT discount.

For this kind of problem to occur in Penrith, its should show us that negative gearing policy change is a generational shift that should occur. It’s wrong that baby boomers are able to swoop in and deny Gen Y first home owners chances to buy their first home. There will be ridiculous scare campaigns directed at boomers and Gen X middle class voters, such as Malcolm Turnbull’s “Middle Class People, Your House Value Will Drop!!!!!” Even if that happens, that would be a good outcome for younger generations wanting to buy. It is difficult to see, however, with the grandfathering provisions for the people currently using negative gearing, how prices would drop dramatically. It would be hard to see why people who own investment property would panic sell before the changes come, risking a dropped value in their properties. The shift might be more gradual, however, as people investing in property will have to consider how to do their investing in the future.

Another criticism of the plan will state that may also be a bit of an increase in value in new developments, but that will also be interesting to see – there’s a great deal of building going on around the country which will need investors and it’s difficult to envisage a huge battle between investors driving up prices artificially. This way, channelling investor cash towards new property will have the impact of helping to grow working class jobs in construction and steel, rather than just helping to artificially driving up prices on existing properties.

There’s more qualified people than me to be looking at such things, using graphs and data. This is just one taxpayer’s questioning of funnelling possible taxation receipts into the pockets of wealthy property owners from the Baby Boomer and Generation X just willing to get more low risk cash. Meanwhile, the younger generation wait while such people count their tax breaks and advantages.

437 thoughts on “Negative Gearing – Why Boomers and Gen X Need to Let It Go”

  1. eJames,

    You (along with certain other Pubsters whom I won’t name and shame just now) have obviously been teasing the Spam Monster, and Spam Monster retaliates in the only way it knows how: gobbling your comments.

    You have been rescued for the time being. If you continue teasing the poor little critter, I will have to ask The Boss to put you in the Norty Corner for the mandatory 30 minutes.

    (I think that at this point, the plods would issue some advice along the lines of ‘Keep your nose clean, Sonny Jim’ . . . )

  7. Good morning Dawn Patrollers.

    Michael Pascoe says that the government is paying the price for its own tardiness over superannuation. He’s not happy.
    http://www.smh.com.au/business/the-economy/superannuation-ready-fire-aim-20160316-gnl056.html
    The Herald Sun says Turnbull is just about out of time in revealing taxation policy. (Google the following link)
    /news/opinion/malcolm-turnbull-is-almost-out-of-time-on-revealing-taxation-policies/news-story/91085b1d5fd36060f9bc48dfd53de9ca
    A serious letter from Waleed Aly in London in which he draws the parallels between Brexit and Trumpism.
    http://www.smh.com.au/comment/worlds-elite-wisdom-may-no-longer-matter-as-new-winners-create-losers-20160317-gnl6hn.html
    The government will ban live sports betting. Stand by for a backlash from the big industry players. (Another Google job).
    /national-affairs/live-sports-betting-ban-until-federal-election/news-story/70a92b4407c2afdfe9932ed01e45a83d
    “The doomsayers are wrong. Our debt is well regulated, and sound”, says Stephen Koukoulas.
    http://www.theguardian.com/business/commentisfree/2016/mar/18/the-doomsayers-are-wrong-our-debt-is-well-regulated-and-sound
    Mark Kenny writes on the attitude of the older demographic towards taxation changes.
    http://www.theage.com.au/comment/election-2016-uncertainty-is-the-new-black-20160317-gnla5m.html
    A very good article from Lenore Taylor on Turnbull’s troubles with the “rump” And have a look at her last paragraph – it’s a beauty!
    http://www.theguardian.com/australia-news/2016/mar/17/caving-in-to-the-right-on-safe-schools-could-undermine-turnbulls-greatest-asset
    Laura Tingle has a good look at the budget lead up. (More for Google).
    /opinion/politics-may-come-out-of-the-quiet-room-via-a-different-door-20160317-gnlf2e
    It was only two months ago that I succumbed Mrs BK’s pressure to change our mobile phones from Vodafone to Telstra because of its “superior network”!
    http://www.smh.com.au/business/telstra-suffers-network-outage-20160317-gnll2m.html
    The insurance industry is coming under more and more attention. This case is a shocker.
    http://www.smh.com.au/business/consumer-affairs/treated-like-a-criminal-insurance-industrys-fraud-investigations-hurting-innocent-claimants-20160315-gnj857.html
    Grattan on Friday – it doesn’t tell us much.
    https://theconversation.com/grattan-on-friday-turnbulls-double-dissolution-hand-could-be-strengthened-by-final-pitch-to-crossbench-56426
    George Christensen’s Safe Schools petition illustrates the divisions within the Coalition ranks.
    http://www.smh.com.au/comment/worlds-elite-wisdom-may-no-longer-matter-as-new-winners-create-losers-20160317-gnl6hn.html

  8. Section 2 . . .

    The AMA has released a report card on private health insurers.
    http://www.smh.com.au/national/health/best-and-worst-health-insurers-revealed-in-ama-report-card-20160317-gnl6qh.html
    “View from the Street” asks which party is being the biggest jerk today.
    http://www.smh.com.au/comment/view-from-the-street/view-from-the-street-which-party-is-being-the-biggest-jerk-in-parliament-today-20160317-gnlg1l.html
    Judith Ireland writes on SSM, Federal Parliament’s political football of choice.
    http://www.smh.com.au/federal-politics/political-opinion/samesex-marriage-federal-parliaments-political-football-of-choice-20160316-gnl2ty.html
    Christopher Pyne blasts the Trump phenomenon.
    http://www.smh.com.au/federal-politics/political-news/terrifying-and-kind-of-weird-christopher-pyne-blasts-the-donald-trump-phenomenon-20160316-gnl53l.html
    Geoff Lawson says that Australia will pay for poor selection policy at the T20 World Cup.
    http://thenewdaily.com.au/sport/2016/03/17/australia-will-pay-poor-selections-world-twenty20/

  9. Section 3 . . . Cartoon Corner

    Alan Moir with Abbott’s tactics.

    Andrew Dyson fives us a new interpretation of “bracket creep”.

    Looks like David Pope is one of the Fairfax journos to go on strike so here’s his effort from yesterday just because it was so funny.

    Ron Tandberg on the chances of success for the VFT.

    Mark Knight on the outlook for Melbourne traffic.
    http://cdn.newsapi.com.au/image/v1/2c438db39b079d23eaa1ebedd1c03aac?width=1024&api_key=zw4msefggf9wdvqswdfuqnr5
    David Rowe is on strike but has privately posted this cartoon on goings on in the Coalition toilet. Have a look at Christensen!

  10. FINALLY!!! I get on the internet…Mobile Broadband my balls!!..oh it’s “mobile” alright…heading east!…jerkoff NBN.

    How’s that f#ckwit G.Gray and his “mate” Chainsaw McFarlane slapping eachother on the back for a “job well done” in their “careers”…..let’s get it straight..; THEY WERE SHIT POLITICIANS !!…and just like shit everyother profession or trade, they don’t deserve any accolades.. When a tradie retires , he or she doesn’t get on the tele’ giving their dumb-ass opinion on how the trades are going…and if you are a shit tradie or professional, you don’t deserve to!

    THEY WERE SHIT POLLIES!…now f#ck off out of our faces while we fix your bugger-ups!

    I tell you what, if the G. Gray was Gillard’s adviser, it’s no bloody wonder she got so much flack from the MSM….having THAT SFB. whispering in your ear would make anyone accident prone.

    And if McFarlane was such a “committed” politician, he would have known his party’s policy objectives and he should have gone to the cross-benches to salve his “committed” conscience.

    AND another thing…:

    I see there is more talk about removing the Goolwa barrages to let sea-water into the lower lakes system….I tell you, I did the penciling for a multitude of tests along the lower stretch of the Murray on the bores next to and on the islands and the water in those bores is in many instances more saline than sea-water already..so if the river flows are dropped, that water goes back into the river effectually destroying the irrigation capacity of all farmers along that stretch of river, which is the main objective of those calling for the removal of the barrages…led by one :Jennifer Marohasy..an IPA. operative and climate denier…and considering that Swan Reach, the town directly below lock 1 is only 75cm. above sea level, you can guess where the sea water will reach to even on a high tide!

    Screw this shit mobile broadband….hang the treasonous bastards!!

  11. ” Christopher Pyne blasts the Trump phenomenon.”…yet, has there EVER been a more obsequious poltroon like Pyne to these bullies and in effect a archetype “bully’s pimp” as Pyne is.

  15. From last night’s discussion about helping Greens in safe Liberal seats –

    Why on earth would you do that? Why would anyone want more of these treacherous Green bastards in parliament? I wouldn’t help one of them, not even to get rid of Kelly O’Dwyer.

    I’ve never had much time for the Greens. Years and years ago I took the time to read their then policies. They were quite something, made communist Russia look like a capitalist paradise compared to what Bob Brown and his cronies wanted to do here. They have toned things down a lot over time, but I still don’t trust them.

    I used to just dislike the Greens but now, thanks to Richard Di Natale, I loathe the lot of them.

    If you want to see a safe Liberal seat become a marginal seat then find a decent independent and work with them, or support the Labor candidate instead of sitting back and saying ‘Labor doesn’t have a chance’. I’d rather work with a sewer rat than help another Green get into parliament.

    • Not targeting people like O’Dwyer must be part of the preference deal.

      Good thing I don’t have twitter because if I said this I’d have several Green hacks yelling THERE’S NO PREFERENCE DEAL YOU ALP HACK.

    • Although I wouldn’t help them either even if I wasn’t a member of the ALP.

    • I wouldn’t be at all surprised if the Greens decided to help Ms O’Dwyer get re-elected.

      A vote for the Greens is now a vote for the Liberal Party.

  16. Must be another part of the deal we’re told doesn’t exist.

  17. So many tweeters expressing their disappointment with the Greens. I’m not disappointed, I was never taken in by them in the first place.

    I just hope all that disappointment is reflected in the Greens vote come the election.

    Richard Di Natale must have realised by now he has been used. He can’t be so stupid that he still can’t see what the government has done to him and his party.

    • I can’t vouch for accuracy but I read somewhere that Sarah Hanson-Young and a couple of other senators wanted the Greens to back Leyonhjelm’s motion but Dodgy Dick didn’t want to do that, supposedly for the reason that he didn’t want to damage his relationship with Turnbull and the government

  18. Getting willing

    Jacinta Collins has just deployed one of her favourite phrases. This is legislation by attrition. She notes that it has taken its toll on Senator Rhiannon.

    Her comprehension has declined.

    The Greens have gone berko, out of their seats.

    Green Larissa Waters:

    Oh, come ON!

    Richard Di Natale has demanded Collins withdraw her disgraceful attribution to Senator Rhiannon.

  20. The Greens are now dismissing a Labor amendment on lowering the disclosure threshold for political donations. They wanted this a few weeks ago, now they don’t want to talk about it.

    Must be another part of that deal that doesn’t exist.

  23. X: the very model of a Liberal

    The senate is dividing on the Labor disclosure amendments now. The Greens are voting with the government. Love to show you that division because I know a lot of readers would find that one interesting. But the rules prohibit us photographing senate divisions.

    The cross benchers are voting with Labor. Nick Xenophon is voting with the government and the Greens.

    Bye bye opportunity for more transparency. There goes the amendments.

    http://www.theguardian.com/australia-news/live/2016/mar/18/senate-sits-through-the-night-to-consider-voting-reform-politics-live#comments

  25. Malcolm Turnbull’s ‘exciting time’ catchcry changed to hide possible breach, Labor says

    The Federal Opposition claims Prime Minister Malcolm Turnbull’s “exciting time” catchcry has been removed from the Government’s Ideas Boom website to hide a possible breach of advertising guidelines.

    Labor last month referred the $28 million ad campaign promoting the innovation agenda to the auditor-general, saying its use of the “exciting time” phrase was party political.

    Until at least February 28 the Ideas Boom homepage prominently featured: “There’s never been a more exciting time to be Australian.”

    But by early March the slogan on the website front page had been replaced by: “Welcome to the ideas boom.”

    Labor’s waste watch spokesman Pat Conroy said the Government had questions to answer.

    http://www.abc.net.au/news/2016-03-18/exciting-time-catchcry-taken-offline/7256556

    Before and after –

  27. Stan Grant approached the Nationals about running as a candidate. WTF! He should have asked Rob Oakeshott about the way the National Party treats indigenous people and racism in the party ranks.

    Stan Grant rules out running for National Party in federal politics bid
    http://www.abc.net.au/news/2016-03-18/stan-grant-rules-out-running-for-nationals/7257544

    Grant should just forget politics. He obviously has no deep commitment to either side, he’s just shopping for offers.

  28. What a shame we can’t have a photo of the Greens sitting with the government during the divisions on the reform bill.

    • Once more people lacked awareness and are now disappointed. And yet they seemed to see so many bad things in JG, things that weren’t there. I don’t understand such people.

    • Most people are followers. They tend to follow the agenda set in the media. With Murdoch controlling most print and radio & TV relying on print for their talking topics (saves on having to employ so many news staff) it’s easy to set the agenda. It’s only reason the repulsive Abbott could be considered a leader and why a competent caring person like JG can be demonised. This nonsense verse captures it
      Last night while climbing on the stair
      I saw a man who wasn’t there.
      I saw that man again today.
      I wish that he would go away.

  31. Yep.

    Perhaps Stan Grant would like to try running for the Greens.

  35. Makes no difference to us below-the-liners.

    Pity the other 80% don’t realise what they are about to do.

  37. I agree, Stan Grant comes across to me as quite a Warren Mundine-type figure.

    Oh and the Greens can have him if he goes that way too.

    But yeah. By the looks of things, Di Natale appears to have made a big blunder in his actions today. The next polls should be interesting.

  38. I can’t vote for Ricky Muir in the senate, if there is a DD. but no matter what sort of election we get I can put Lee Rhiannon last.

  39. The big question now.

    Will King Malcolm Lack-Balls have the guts to call a DD or will he faff around and procrastinate until it’s all too late?

    • If he doesn’t then this rubbish ‘reform’ was a waste of time as Muir, Leyonhjelm, Lambie, Lazarus and Wang aren’t up for election if it’s a half-senate election.

    • If Dodgy dick keeps this up then I might put the greens only ahead of the bottom of the barrel, worst of the worst on the ballot paper (Fred Nile, Danny Nalliah et al).

    • To continue 😀

      David Leyonhjelm.

      This week, we learnt that there’s no principle that the government, the Greens or Nick Xenophon will not abandon for a few extra seats in parliament. This unholy alliance has raised the bottom rung of the ladder to exclude new parties from the Senate, make it a lot harder for those of us already here.
      But the minor – the fightback of the minor parties – starts now.

  42. Chopping out important bits

    Some content will be removed, including role playing activities.

    The program will apply in secondary schools only.

    The government will be requiring that, in relation to all official resources, branding of other organisations, links to other websites, references to other organisations be removed unless those organisations are a Commonwealth, state or territory-funded mental health or counselling service.

    The official resources of the program will be moved from the Safe Schools Coalition website to the Safe School hub. Safe School hub is a website supported by education departments all around Australia.

    Ensure that parents are appropriately empowered and engaged by requiring agreement of relevant parent bodies for schools to participate in the Safe Schools Coalition Australia programme, including the extent of participation and any associated changes to school policies.

    Requiring parental consent for student participation in programme lessons or activities, while maintaining the rights of all students to seek counselling services.

    Having an official fact sheet for the Safe Schools Coalition Australia programme for parents about the programme developed so they have access to full and consistent information of its content and the resources that may be used in schools.

    Having an official resource for parents of students dealing with questions of sexual identity developed, and distributed only by key qualified staff.

    http://www.theguardian.com/australia-news/live/2016/mar/18/senate-sits-through-the-night-to-consider-voting-reform-politics-live#comments

    • And yet it’s OK to allow a bunch of unqualified happy-clappers into schools as ‘chaplains’ to teach kids to be bigots.

  43. That mysterious ‘get rid of Safer Schools’ petition we heard about yesterday allegedly had 43 signatures. Would those signatures belong to the mob who voted for Abbott in the leadership spill? There were 44 of them, so it’s very likely the Abbott camp supported this as yet another way to get at Waffles.

  44. The senate just made it a bit harder for Waffles to go to an early election..

    The Greens voted with Labor and the crossbench. Must have been left out of their deal.

    Meanwhile back in the red room, Labor and the crossbench have passed a motion making it harder for the government to call a double dissolution election by limiting its ability to recall the Senate.

    On Friday afternoon, the government senator leader, Mitch Fifield, proposed a motion that the Senate rise until Tuesday May 10 “or such other time as may be fixed by the president”.

    Labor, the Greens and five independent and minor party senators joined forces to pass an amendment to that, saying that the president or deputy president can only only recall the Senate with the “absolute majority of senators where the leader or deputy leader of a party in the Senate can concur on behalf of every senator in that party”.

    It makes it harder to sprint to an early election. It doesn’t make it impossible

    http://www.theguardian.com/australia-news/live/2016/mar/18/senate-sits-through-the-night-to-consider-voting-reform-politics-live

    • The government has the CEFC legislation as a DD trigger. They don’t need the Senate.

    • TBLD

      I read some analysis in the last few weeks (can’t remember where) that suggested the CEFC rejection is not “important” enough to justify a DD..

  45. So, the bigots and homophobes have gutted the Safe Schools program. It is a total disgrace. At least we here in Victoria can rely on Dan Andrews. Hopefully he will retain it as it is and fund it if they withdraw the funding for not complying with their ‘new’ rules. I see they aren’t going to continue the funding after the four years are up anyway.

    • So it’s now going to be limited to secondary schools. Have they limited puberty education to secondary schools as well? I remember learning about puberty in primary school and one of the books given to us had diagrams of a naked man and woman.

    • And why is it that no one can tell us what these ‘inappropriate resources’ are?

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