Reserve Bank urges Treasurer Joe Hockey to reform negative gearing laws

THE calls for changes to negative gearing laws just keep getting louder, with the Reserve Bank adding its voice to the chorus. But is the Treasurer listening?

Treasurer Joe Hockey holding a press conference to provide an update on recent international developments, at Parliament House in Canberra.

TREASURER Joe Hockey may want to leave negative gearing alone in his tax system review, but the Reserve Bank believes it should at least be looked at.

The central bank says there is a case for reviewing negative gearing because it is too generous to investors compared to some other countries.

In its submission to a parliamentary inquiry into housing ownership, the RBA says the tax break should be looked at in terms of its interaction with other aspects of the tax system.

It says while the impact of negative gearing allows investors to offer affordable rents to tenants it has encouraged investment in housing.

The attractiveness of negative gearing is amplified by capital gains being taxed at half the marginal tax rate, it says.

“Since property can usually be purchased using higher leverage than other assets that produce capital gains, property is especially affected by this feature of the tax system,” it says.

But Mr Hockey argues that individuals should be able to deduct their business expenses against their primary income.

“People think of negative gearing as only applying to real estate but it applies to shares, it applies to a whole range of things,” he told a tax forum in Melbourne on Wednesday.

ANZ chief Mike Smith ... he is but one of the business leaders calling for reform to Australia’s negative gearing laws.

He said by removing negative gearing on real estate as some are suggesting and the Labor Party is pursuing, they are creating an exception to a standing rule in taxation law.

“That would be creating another exemption,” he told the PwC tax reform forum.

ANZ boss Mike Smith has previously called for a discussion on negative gearing as part of the government’s tax review white paper.

“It is somewhat ironic that we live in country which encourages borrowing and discourages saving. That doesn’t, somehow, feel right,” Mr Smith told a business lunch last month.

Prominent economist Saul Eslake has long called for the removal of negative gearing, saying recently that it would calm the housing market in Sydney and Melbourne.