Negative gearing tax benefits: The $5 billion Turnbull is ignoring

MALCOLM Turnbull is standing firm against making changes to Australia’s negative gearing system, despite a report that says it could boost the Budget.

Australian Prime Minister Malcolm Turnbull attends ANZAC Day ceremony at the Australian War Memorial in Canberra, Monday, April 25, 2016. (AAP Image/Lukas Coch) NO ARCHIVING

MALCOLM Turnbull today is ramping up his rejection of changes to negative gearing by branding the Labor policy an attack on a century-old “economic freedom”.

But as he elevates the issue, the Prime Minister is being told that, by refusing to wind back the income tax reduction, he is ignoring $5 billion a year in savings for an already-stretched Budget.

His claims are sharply contested by the Grattan Institute report released today.

The influential think tank argued Australia’s system of offsetting real estate losses against income tax was not world practice, and was hugely expensive — costing nearly $12 billion a year.

The report said winding back a capital-gains tax discount and negative gearing over 10 years would bring in $5.3 billion extra a year for the government.

The institute said one change alone — negative gearing losses against income from other investments, and not wages — would raise $2 billion a year in the short term, and $1.6 billion once fully phased in.

And housing would become more affordable but the drop in prices would be limited to 2 per cent, the Grattan Institute calculates. Rents would be stable.

It also argued the scheme was dominated by wealthy investors.

Treasurer Scott Morrison today contested this, saying it was a calculation based on the size of investments, not the number of investors.

Mr Morrison said two thirds of negative gearing investors were “ordinary Australians” such as teachers and midwives, and were not wealthy.

Malcolm Turnbull says negative gearing is an ‘economic freedom’. Picture: AAP Image/Lukas Coch

Mr Turnbull made clear in an article in the Herald Sun today he would not budge from the government’s attacks on Labor’s election campaign policy to end negative gear for all but new housing.

“Labor’s negative gearing housing tax is just a big restriction on economic freedom in order to raise more tax,” wrote Mr Turnbull in a newspaper piece.

“And remember: the ability to deduct the costs of investments, including interest, from personal exertion income is not new — it has been an accepted part of our tax system for more than a hundred years.

“What about their argument that restricting the application of negative gearing to investment in new dwellings will increase construction? Really?

“Those investors who buy a new house or apartment will be most unlikely to be able to sell it to another investor.

“So over time the supply of rental property will shrink and rents will go up. And how exactly do higher rents help first homeowners save for their deposit?”

Originally published as Negative gearing tax benefits: The $5 billion Turnbull is ignoring