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

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

    • Katharine picked it

      The Labor leader Bill Shorten is using his 90 second statement before question time to speak about Safe Schools. His message is directed at the prime minister. The prime minister needs to stand up on this issue.

      Bill Shorten:

      When you give into a bully, they come back wanting more. When you give into bullies on the right wing of your party, they come back wanting more.

  1. Waffle …. waffle ….. point ….. waffle ….. fold arms …… waffle ……. unfold arms …… waffle …… sneer ….. waffle …. remove specs ……. waffle …… replace specs ……. waffle …. smirk ……. more waffle ……

    I think that pretty much sums up Turnbull’s contribution to QT today.

  2. Interspersed with incomprehensible rantings from the pretend-Treasurer, it seems.

  3. “The PM is spineless” is the theme for the day.

    Just flicked Catherine’s q to Dutton.

    Yep – spineless.

  4. Are the noddies allowed to talk to each other while one of Their Heroes is answering a DD?

    • Could be a lengthy debate:

      Backside, behind, bootie, booty, bottom, breech, bum, buns, butt, buttocks, caboose, can, cheeks, derrière, duff, fanny, fundament, hams, haunches, heinie, hunkers, keester, keister, nates, posterior, rear, rear end, rump, seat, tail, tail end, tush.

    • “No use looking to Turnbull to save us from these forces. The man has all the courage of a dead cod.”

    • A typical comment on the site “lmfao… you have got to be kidding? You just lost any credibility you may have had”

  5. I admit I’m having a bit of trouble keeping up with this debate on the new senate voting system.

    Mainly, what exactly is going on here? I know the Liberals and Greens have made a deal of sorts, but, as far as I can tell, a move to tackle the senate being overrun with microparties is surely a good thing for Labor? I mean, thanks to the microparties, Labor was reduced to electing 1 of 6 Senators for South and Western Australia last election. I gather the Liberals lost out on a 3rd seat in Victoria, Tasmania and Queensland to microparties too, but, really, the new deal isn’t that damaging to Labor surely?

    I don’t really get what Sam Dastyari’s argument is about that it could deliver the Coalition a majority easier, it doesn’t seem that way to me. I could see a somewhat deadlocked senate at times across the left/right divide, but a Coalition majority? I doubt they’d win over 50% of the vote in any state soon, and preferences would be their enemy in getting a 4th senator up.

    Or is it the politics around this bill? In that the Liberals and Greens are trying to rush it through so then Turnbull can call an early DD and Labor is trying to run interference to deny him that luxury? In that case I can probably understand.

    • really need to remind people that 7-11 proprietors are big Liberal donors and Turnbull has shares in 7-11

  6. https://www.themonthly.com.au/today/sean-kelly/2016/17/2016/1458192472/not-so-clever

    http://www.smh.com.au/nsw/manildra-had-20-meetings-with-nsw-ministers-before-new-ethanol-laws-introduced-20160316-gnkefz.html

    http://www.theguardian.com/commentisfree/2016/mar/17/cory-bernardi-impresario-fostering-the-new-generation-of-young-fogies

    http://www.abc.net.au/news/2016-03-17/jobs-data-employment-abs-february-2016/7253944

    http://thenewdaily.com.au/money/2016/03/16/negative-gearing-proponents-claims-dont-stack/

    https://overland.org.au/2016/03/the-dangers-of-trump-denialism/

  7. I have just viewed Shorten’s National Press Club address and was predictably incensed by Mark Kenny’s assumption that the Medicare payments system would be more efficient in private hands B U L L S H I T more expensive yes

    Last November, I said I would campaign for the Greens to unseat Kelly O’Dwyer, I am seriously unhappy with DiNatale, should I back out of supporting Greens in Higgins – not sure a Labor candidate has a hope there

  8. billie11 – on purely tactical grounds, and not being a fan of the Vic Greens at all, I would still support you campaigning for a Green in Higgins, if that is the best way to unseat Kelly O’Dwyer. On the same grounds as I would support Nick Xenophon’s mob taking a safe seat off Jamie Briggs (which is looking very possible). Its one Labor would never win, same as we’d never win in Higgins. It would put the wind up them and make them spend resources they would rather use in marginal seats. Its not impossible, they did win in Phraran in the Vic election (although that was a more three way contest). It showed that there is a certain kind of younger well heeled voter who might switch to the Greens as a sort of moral vote, but would never vote Labor. That’s OK. I’ll fight them in any ALP seat, but they can have as many otherwise safe Lib/Nat seats as they want!

  9. Also I caught up with yesterday’s SSO. Tony Burke’s speech is on youtube (but Shorten’s is not, that’s a shame). But Burke was commanding the floor here. It was a withering attack, not looking like one done by a losing party at all.

    And I’m starting to get the sense that Turnbull looks more and more like someone who’s fighting on two fronts. First there’s Labor, who are attacking him with as much ferocity as they did to Abbott, and then there’s the backbiting from those in his own party. The hard right hates him to the point where they seem to be no longer willing to put their hearts in (well, the shard of flint those people call a ‘heart’) to help the L/NP at the election. No matter how much he panders to them, they’ll never forgive him.

  10. Kirsdarke

    Even someone with an ego the size of Truffles’ will be starting to seriously wonder if it is deja vu all over again. The rise and fall of LOTO Truffles and the enemies wot done him in are looking very much like getting an ‘encore performance’ in the current production of the farce “Truffles PM ” . How sad…NOT.

  11. The Turnbull experiment has turned out to be a massive waste of time. The only point of it was to piggyback on someone’s personal popularity in order to keep the party afloat. That they thought they could dictate Abbott policy to him and think everything would come out all right was one of their stupider ideas. That Turnbull went along with it so willingly shows both how spineless and how arrogant he is.

    It’s all just fresh paint on a collapsing house.

  12. Mind you, the Liberals never care where their political capital comes from, as long as they can spend it. Blatant lies, open smears, naked appeals to greed or xenophobia, elevating an effigy of a politician like Turnbull, they’ll do anything for a short-term hit.

  13. I was looking at some stuff about the execrable George Christensen and was surprised to see Tamara Candy, his bleach-blond bikini-babe advisor say she and George shared the same religious faith – Eastern Orthodox. She claims to be Russian Orthodox, George’s Wikipedia entry says he’s Greek Orthodox. Not exactly the same, but close enough. George does not strike me as being the religious type, it seems suspicious.

    I just couldn’t see how someone whose family arrived from Denmark in 1901 could be Greek Orthodox, but that’s what his Wikipedia page says.

    I thought he was lying, so I checked his Wikipedia history. The change from no religion at all to ‘Greek Orthodox’ was made around 21 October 2014 Either George is making up crap or someone has changed his entry and he’s too dumb to have noticed.

    Old page –
    https://en.wikipedia.org/w/index.php?title=George_Christensen_(politician)&oldid=629977275

    Latest page –
    https://en.wikipedia.org/wiki/George_Christensen_(politician)

  14. Tony Windsor and Bananaby are doing a question and answer thing at the Tamworth Hotel with Paul Murray for Sky News right now. Not in the mood to pay attention tonight, but I’m recording it for later. Might report on it tomorrow, maybe. I suspect it will be arranged in a way designed to favour Bananby.

    • Moderated by Paul Murray. I caught an ad for Murray’s Sky program a couple of days ago. It was 30 seconds straight of him slagging off Windsor.

      Plus Twitter had a few shots of Murray palling about with Joyce just prior this going to air. So I wouldn’t be expecting too much out of this.

  15. As I thought –

  16. God it would be so delicious if Windsor beats Joyce at the election.

    Hopefully with their leader defeated in his first term as such it would smash the Nationals electorally for the elections after that.

  17. I hope some of you who know more about these things than I. if reform is needed why don’t we vote for senators like we do in the House of Reps?

    • You can, if you want to number every box. That way you decide where your votes go and the deal makers are cut out.

    • I know that leonetwo but grubs like Cory Bernardi here in SA rely on the very thing they want to change real reform would also cut out party time servers like Bullock et al getting the nod if the argument is “all” about giving voters the choice let the senate be elected as the HOR

  18. Here’s my problems with the senate ‘reform’ process

    Firstly there has been no scrutiny whatsoever, just a one day hearing with the bills being railroaded through parliament. Proponents claim that we had the inquiry by the joint standing committee on electoral matters but this bill has heavily deviated from the recommendations by the committee to the point where there is little resemblance between the two. All for what? so Turnbull can call a Double Dissolution election?

    Secondly this model is a complete turkey that really does little to solve anything, it was designed to protect the Greens and their senators and to give them back the balance of power that they feel entitled to, which they lost to the micro parties. Even then it may fail in that aim if the preference whisperers find a way to game this system (Which they probably will).

    IMO they should chuck this rubbish in the bin and start anew.

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