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Victoria, Australia, June 4th, 2016 — There are many theories as to
why Australian housing prices have soared over the past decade, most
of these so called experts look to peripheral factors with flimsy
evidence to back up their claims. (Free-Pr-Online.com)
Negative gearing is one of their pet factors they claim has caused
residential housing prices to soar however, this has been government
policy for over 25 years and their claims are flawed as I will explain
later in this article. Negative gearing was originally designed to
increase the rental housing supply and figures indicate that the
policy is an outstanding success for both tenants and investors.
Investment housing as indicated below in graph 1 now matches home
owners in value and thus any disruption to this policy will cause a
major downturn in the Australian housing market.
The obvious cause of soaring housing prices is the collapse in
interest rates over the past 8 years, falling by as much as 6%, from
7.75% in 2008 to 1.75% in March 2016 as indicated in graph 2. The
collapse in interest rates allows home buyers to borrow more against
their current homes or investment property thus increasing the value
of the housing stock. This spiral upwards is to the despair of first
home buyers who struggle to catch up with the ever increasing values.
Retirees also suffer as bank interest is no longer an option for
The Australian Labour Party (ALP) have seized on a flawed report on
Negative Gearing by The Grattan Institute to push their cause. The
Grattan Institute fails to address interest rates as the main case of
the property boom and naively suggests investors should buy new homes
on the fringe of suburbia where capital growth is lowest and any
resales compete directly with the cost of construction rather than
Furthermore, the ALP policy would also reduce the number of buyers in
the property market by around a third with the property sector being
split equally in three areas, Tenants, Investors and Home Owners. This
naive policy to change the current negative gearing policy is at the
peril of most Australians as the stampede to sell early will have
catastrophic consequences on the Australian economy and unemployment,
with a third of all property purchasers vacating the property market
to look for more lucrative investments and Tenants finding
accommodation almost impossible to secure.
Also, had The Grattan Institute simply looked across the ditch, they
would find that the New Zealand taxation system doesn’t have a Capital
Gain Tax at all and personal taxation rates are significantly lower
than Australia’s being 10.5% = $0 to $14,000; 17.5% = $14,001 to
$48,000; 30% = $48,001 to $70,000 and 33% thereafter. Other countries
in our region (Singapore 17%, Hong Kong 16.5%) similarly have
significantly lower taxation rates than Australia’s.
Finally, The Grattan Institute article seems to be a naïve attempt to
increase taxation on flimsy evidence where in contrast, the majority
of evidence is that Australia’s taxation system as simply
uncompetitive with the rest of the world.
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