Buying that second or third investment property to help fund retirement may be less attractive in future with Labor opening the door to a policy of tightening up negative gearing tax concessions, if elected.

The possibility of less favourable rules for wealthy property investors came as Labor formally unveiled its proposed tax increases for high-end superannuants.

But any negative gearing change, which has not been committed to, would have to be prospective in its application and would not affect existing landlords, said shadow treasurer, Chris Bowen.

It would also need to be tailored to achieve the twin goals of returning funds to the federal budget and ensuring ongoing supply of new housing stock into the rental and purchasing markets.

It is one of several prickly policy options being forced on both the government and the opposition as they look for ways to fund new promises while repairing a budget stricken with falling revenue and burgeoning fixed outlays on health, education, and social security.

Unveiling Labor's new policy to lift taxes on superannuation earnings for the wealthy, Mr Bowen has committed a future Labor government to making budget savings over 10 years that exceed any new spending. And he has confirmed there will be other adjustments to the tax system to come, including possible changes to negative gearing - the longstanding tax break that allows investment property costs to be written-off against income for tax purposes.

While no details have been released, such a move could be expected to cool currently overheated capital city property markets, which have been turbo-charged in recent times - particularly Sydney and Melbourne - by a combination of cheap money via record low interest rates, and generous negative gearing rules.

The situation has shut many low income-earners and potential first homebuyers out of the market.

Speaking at the National Press Club, Mr Bowen said it would be "irresponsible to rule out going to the next election with changes to, for example, negative gearing".

"I have said our principle will be 1. Do not disadvantage people who have made investments in good faith under current rules. 2. Do not risk reducing the supply of new housing or, if possible, improve the situation with the supply of new housing'," he said.

Prime Minister Tony Abbott last week ruled out any changes to negative gearing, saying he didn't want his government's tax reform plans to begin with "increasing taxes".   

Questioned on Labor's approach to policy in the lead up to the election, Mr Bowen pledged to continue releasing policy in time for voters to understand it, promising Labor would not hold back policy announcements until the final week of the election campaign.

Just weeks away from delivering his second budget, Treasurer Joe Hockey took a swipe at Labor's proposal on superannuation but also left open room to adopt it if deemed necessary.

"We will have a look at the details, but I am always sceptical about Labor coming up with a plan that increases taxes," he said at a speech in Melbourne.

Mr Hockey said the government was looking at superannuation taxation arrangements along with other issues in its tax white paper process, accusing the opposition of "making it up" as it went along.

"I don't like higher taxes; I am philosophically opposed to higher taxes," he said.

"Because if you increase taxes you're just collecting someone else's money."

"I am saying we have a tax white paper; we have a proper process. Quite frankly we said if there are integrity measures they should be looked at."

Statistics from the Australian Tax Office show that in 2011-12 almost 2 million Australian taxpayers owned an investment property. But the majority of those were owned by people toward the upper end of the income scale.

Defenders of negative gearing have argued that the tax break is needed to assist ordinary people on average weekly earnings service the costs of real estate investment as part of their retirement portfolio.

Shadow treasurer Chris Bowen has left open the idea of Labor going to an election with a policy of winding back negative gearing.

It might not be popular; almost 2 million Australians invest in property, with the majority of them making net rental losses that they use to reduce their income tax bill, costing the federal budget up to $5 billion a year in revenue.

But Labor might be prepared to wind back negative gearing for future investors in property.

Mr Bowen was pressed about it last night by Leigh Sales on 7.30.

"Negative gearing is on the table as something you're having a look at?" she asked.

"What I said last time was that any changes we took to negative gearing would be taken to the next election," Mr Bowen responded.

"Our principle would be that people who've invested in good faith with existing rules shouldn't be disadvantaged and anything we do should not take away from new housing stock, which is very important for housing affordability.

"And I also I think said to you that I didn't envisage either side of politics abolishing negative gearing in its entirety.

"But of course when everything is being examined in a tough fiscal situation, any responsible opposition would be considering a range of measures. But we'll be upfront about anything we do before the next election."

Government rules out negative gearing changes

Prime Minister Tony Abbott ruled out changes to negative gearing last week, and was backed last night by Social Services Minister Scott Morrison.

Mr Morrison was speaking to former Labor minister, now Sky TV presenter, Graham Richardson, who argued negative gearing was a tax break for the wealthy.

"That is actually not true," responded Mr Morrison.

"Mate, a battler out there in the suburbs on $70 grand with the three kids, how many extra houses do you reckon he owns?" questioned Mr Richardson.

"You'd be surprised how many people ... particularly in small business, who don't earn a lot of money, have invested through negative gearing into properties to provide for their own retirement," Mr Morrison replied.

"That is a fairly common practice. I know plenty of people ... on meagre incomes. No, not even in a super scheme. They've just done it for their kids, they've done it for themselves, and they've made big sacrifices to do it."

Ken Morrison from the Property Council of Australia is another who argues that property investors are everyday Australians, and that they help by providing rental accommodation.

"Eighty per cent of people who own investment properties that negative gear them [are] actually on salaries of $80,000 or less," he said.

"So this is actually something that middle Australia uses to help build their household wealth, build for their future, provide security for their families.

"This is not a rich person's toy, this is not for the rich and famous. This is for middle Australia saving to get ahead."

Not so, responded Saul Eslake, chief economist with Bank of America Merrill Lynch Australia.

He replied that the $80,000 a year that Ken Morrison referred to was their income after they had minimised their tax.

The most recent Tax Office statistics put the number earning $80,000 or less at 72 per cent, and an ABC analysis last year showed how those figures massively underestimate the income of real estate investors.

Instead, Mr Eslake pointed to figures used by the Reserve Bank that show 60 per cent of the money borrowed for property investment is borrowed by those on the top 20 per cent of incomes.

"I can't think of anything that would provide more assistance to the increasing proportion of Australian young people and even middle-aged adults who would like to be homeowners than getting rid of negative gearing," concluded Mr Eslake.

I like how he's proposing to grandfather existing NG arrangements and may be signalling that it may be retained for the construction of new properties

Bam wrote on Apr 24^th, 2015 at 1:37pm:



devils in the details there to ... if I buy an old house and do a complete reno, does that count as new stock?

if not who's going to upgrade all the old stock?