Dump negative gearing in favour of Reagan-style tax cuts, says professor
Negative gearing could be scaled back to finance income tax rate cuts in a similar vein to Ronald Reagan's 1986 tax reforms in the US, a leading tax professor says.
Miranda Stewart, who will host a two-day forum on the future of the tax system at the Australian National University this week, said taxpayers subsidised rental losses for property investors by more than $7 billion in 2011-12, the latest figures available. That money might be better spent on arresting bracket creep, particularly for moderate income earners, she said.
"We're putting more than $7 billion into some people's speculative investments at the expense of other taxpayers who are paying higher tax over time," Professor Stewart said.
"That's a lot of money. If we were to quarantine those losses even partly, over time we could finance a tax cut to recapture bracket creep."
Bracket creep, or fiscal drag, is what happens when growth in wages is in line with, or more than, inflation. As a result, taxpayers pay higher average tax or are pushed into higher marginal tax brackets.
In the 1980s, then US president Ronald Reagan capped deductions for negative gearing of property. This protected deductions for some lower rental investors, while closing tax shelters of high income earners, and helped fund income tax rate reductions.
Negative gearing allows interest payments on mortgages for investment properties to be used as a tax deduction against wages or other income. While it is used by taxpayers across the income distribution, in 2011-12 the top 2 per cent of taxpayers claimed more than $650 million in net rental losses.
Subscribe to gift this article
Gift 5 articles to anyone you choose each month when you subscribe.
Subscribe nowAlready a subscriber?
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Tax & super
Fetching latest articles