Sir lastnail wrote on Dec 16
th, 2015 at 8:43am:
Why negative gearing on property sucks
Opponents of negative gearing argue that:
Quote:It encourages over-investment in residential property, an essentially "unproductive" asset, which is an economic distortion.
Investors inflate the residential property market, making it less affordable for first home buyers or other owner-occupiers.
In Australia in 2007, nine out of ten negatively geared properties were existing dwellings, so the creation of rental supply comes almost entirely at the expense of displacing potential owner-occupiers. Thus, if negative gearing is to exist, it should only be applied to newly constructed properties.
It encourages speculators into the property market, inflating for instance the Australian property bubble that began in the mid-1990s, partly the result of increased availability of credit that occurred following the entry of non-bank lenders into the Australian mortgage market.
Tax deductions and overall benefits accrue to those who already have high incomes. This will make the rich investors even richer and the poorer population even poorer, possibly creating and prolonging a social divide between socioeconomic classes.
Tax deductions reduce government revenue by a significant amount each year, which either represents non-investors subsidising investors, or makes the government less able to provide other programs.
A negatively geared property never generates net income, so losses should not be deductible. Deductibility of business losses when there is a reasonable expectation of gaining income is a well-accepted principle, but the argument against negative gearing is that it will never generate income. Opponents of full deductibility would presumably at least allow losses to be capitalised into the investor's cost base.
https://en.wikipedia.org/wiki/Negative_gearing Sorry Naily, you'll have to do better than pluck a wiki excerpt. There are a number of errors in their assumptions.
The taxation revenue angle has already been fully explained to you in another thread. Ignore it if you wish but it doesn't make it so. Attempting to deflect the argument with the preposterous claim that the CGT is absent if the property is not sold ignores the obvious situation that the absence of capital gain and an absence of rental income is not a viable investment in the first place.
The excerpt gives no consideration to the excess burden created by withdrawal of the tax benefit in that the income stream of the lender is also extinguished and therefore their taxable component vanishes as well. Net result is precisely zero. Swings and roundabouts indeed.
One day Naily will get it.
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