Labor’s negative gearing reform to hit middle earners hardest

Negative gearing clawback may hit mid-range income earners harder than ‘silvertails’.

Robin Welsh and wife Michelle at their Kewdale home. Picture: Matthew Poon

Labor’s negative gearing clawback has the potential to hit mid-range income earners in the suburbs and regions harder than “silvertails” living in wealthy inner-city ­electorates.

The policy, although grand­fathered to allow existing investment property owners to go on receiving the tax break, will close down an important avenue of wealth creation for people of ­limited and moderate means.

For these investors, negative gearing is a proportionally larger part of their tax strategy than it is for the very well-off, analysis of Australian Taxation Office data shows.

Enclaves of privilege such as former prime minister Malcolm Turnbull’s former electorate of Wentworth in eastern Sydney and the seat of Curtin in Perth’s western suburbs vacated by Julie Bishop amassed the largest average rental losses of about $15,000 and $14,000 respectively for investors to offset against their tax. But The Weekend Australian’s analysis also reveals that thousands of property investors in seats with more ­modest median incomes also used the tax break — and the benefit they received as a proportion of their household income was often greater than in the wealthy ­electorates.

This draws into question Bill Shorten’s assertion that abolishing negative gearing for all properties other than new ones to fund Labor’s spending hikes on health, education and childcare is part of a fairer tax deal for middle-income earners.

A policy brief to be released today by the Menzies Research Centre conservative think tank finds the average negatively geared property investor has a taxable income of $84,590, similar to the full-time adult average wage. For every property investor earning more than $500,000 with the tax offset, there are 49 who make between $37,000 and $80,000.

In the marginal Perth seat of Swan, where earnings sit just above the national norm, 10,962 people claimed a rental loss on investment property averaging $11,280 in 2016-17, latest ATO figures show.

But the existing tax rebate through negative gearing would yield 14.2 per cent of median household income in the seat, playing into the hands of three-term Liberal incumbent Steve Irons who is defending a vulnerable 3.6 per cent margin.

Real estate agent and Swan voter Robin Welsh, 37, who has put together a portfolio of five investment properties with wife Mich­elle, said they were trying to switch their loans to ­interest-only repayments in case Mr Shorten became prime minister. “I’m trying to prolong the life of my investments … to get the most benefit I can,” Mr Welsh said. “And I’m not the typical mum-and-dad investor — if it affects me, it will affect everyone else more.”

In Flynn in central Queensland, where the Liberal National Party’s Ken O’Dowd has a buffer of 1.04 per cent over Labor challenger Zac Beers, 9950 taxpayers racked up an average annual loss of $9492 on investment property. Despite highly paid coalmining and industrial workers in the Gladstone-based seat, annual household income is $2811 below the national median and the value of negative gearing write-offs equates to 13.2 per cent of household income for those with residential property investments, one of the highest levels in the country.

Receptionist Melanie Hennersey, 33, and her surveyor husband Chris, 30, are renting in Gladstone after buying an investment house in Mackay. Without the tax break, they could not make ends meet.

“We rely on negative gearing to get by — we aren’t millionaires,” the young woman said yesterday.

Labor’s tax policy played a big part in her decision to vote LNP in early polling. “I’m always open to what both sides say. In this instance I feel like I didn’t have a choice. To vote Labor would be cutting my own throat,” she said.

The seats where negative gearing counted most allowing for income were Jagajaga in Melbourne’s northeast, held by retiring former deputy Labor leader Jenny Macklin, and Liberal-held Stirling in Perth, where the departure of Human Services Minister Michael Keenan and boundary changes have put the seat in play. Both blue-ribbon Curtin in Perth and the ultra-safe Labor seat of Blaxland made the top 10 list.

Negative gearing allows investment property owners to offset costs such as loan interest against rental income and claim any loss as a tax deduction. If elected, Labor will restrict the benefit to new-built homes and units and halve the capital gains discount, raising $32.5 billion according to election costings released yesterday.

Additional reporting: Mackenzie Scott