Warning for Labor on investor negative gearing hit

New data shows two-thirds of investors who negatively geared property were on taxable incomes of less than $80,000 a year.

Opposition Treasury spokesman Chris Bowen said the government’s plan for a Medicare Levy increase should never have been proposed in the first place. Picture: AAP

Almost two-thirds of all investors who negatively geared property were on taxable incomes of less than $80,000 a year, according to new tax office data that suggests Labor’s policy to slash the widely used practice would hit more lower-income earners with only one investment property.

Higher-income earners bore an even larger share of the broader tax burden, according to the most recent Australian Taxation Office numbers to be released today, with 17 per cent of the $186 billion collected in personal income tax in 2015-16 paid by the top 1 per cent of taxpayers.

At the same time, 3.6 million households effectively paid no tax because of the increasing size of government handouts they were receiving.

Treasury analysis of the 2015-16 tax records confirmed the trend toward families increas­ingly shouldering the lion’s share, with workers on salaries of ­between $80,001 and $180,000 contributing 40 per cent of the ­annual personal income tax take, despite representing less than a quarter of individual taxpayers.

With income tax looming as a major political issue ahead of the May 8 budget and next federal election, an OECD report also confirmed yesterday that Australia’s personal income tax take as a share of total tax revenue was the second highest in OECD member countries, after only Denmark.

The tax office data showed the highest growth in the number of taxpayers in the top two tax brackets, with more middle-­income earners pushed into the highest 47 per cent bracket in 2016 than other workers. People earning more than $180,000 a year made up about 4 per cent of taxable individuals but paid 30 per cent of the total net tax bill.

The statistics also included figures on the number and occupations of people affected by Labor’s $20bn plan to scrap negative gearing on new purchases of existing properties, showing 62 per cent were on taxable incomes of under $80,000 a year.

 

The opposition has argued that the move would target the wealthy with multiple investment properties. However, the data shows that more than 70 per cent of negative gearers did so with only one property. They further reveal that teachers rank behind only company chief executives and senior managers as the largest group of property investors to negatively gear, with 58,000 claiming rental losses on their tax returns.

While 72,000 investors were listed as company executives, 99,000 people claiming rental losses on their tax returns were either teachers, nurses or midwives.

Scott Morrison yesterday sought to attack Labor over tax, claiming that the tax burden was already falling on a shrinking group of Australians.

“This burden is also carried by the few, not the many, despite the claims of the high-tax club,” the Treasurer said.

“Extend that out further and you find that the top 10 per cent of taxpayers pay 45 per cent of total personal income tax paid to the commonwealth.

“Twenty years ago, the top 10 per cent paid 36 per cent … When you combine the top two tax brackets, you get 2.4 million Australians, 23 per cent of taxpayers, paying 65 per cent of personal income tax. These are the people that Labor believe need to pay more tax. These are people earning more than $87,000 per year; these are Labor’s fat cats.”

 

Labor has rejected claims that lower income earners would be hit by scrapping negative gearing, arguing that 70 per cent of the value of benefits from the practice went to the wealthiest 10 per cent. “Despite spurious claims being made about the benefits of negative gearing being overwhelmingly claimed by nurses and policemen, the evidence from analysis by the Grattan Institute shows that in fact it is finance managers and ­anaesthetists that benefit from these investment subsidies,” Labor’s policy document says.

Mr Morrison in a speech to the Business Economists forum in Sydney yesterday made it clear that the competing tax agendas of the Coalition and Labor would be the defining election issue — confirmation for the first time that he would deliver personal income tax cuts in the budget. Senior Liberal MPs cautioned yesterday that any plan by the Treasurer to phase in tax cuts over a longer timeframe would be “political suicide”, suggesting that he would need to offer a significant hip-pocket gesture this year.

“If we want to get any political dividend from income tax cuts, the bulk of it will have to come this year and next year, not off in the never-never,” one Liberal MP said.

The government will seize on the ATO data, claiming it proves that Labor’s negative gearing policy would hurt lower-income earners while its “tax the rich” ­approach would see middle-income earners slugged even more.

“This is dangerous policy and it is driven by envy, it is not driven by economics,” Mr Morrison said.

The ATO data reveals company tax provided about 15 per cent of all tax revenue in 2015-16 compared with the OECD average of about 9 per cent. As a share of GDP, company tax comprised 4.3 per cent in Australia compared with the OECD average of 2.8 per cent.

Australia’s top 10 companies paid 27 per cent of all company income tax in 2015-16, and the top 100 companies paid 44 per cent.

Clearing the tax decks in the lead up to the budget, Mr Morrison confirmed he was dumping the government’s plan for a 0.5 per cent Medicare Levy hike to cover the $57bn unfunded component of the NDIS. The opposition moved quickly to follow the government’s move, dropping its own plan to raise the Medicare Levy by the same amount but only for people earning more than $87,000.

Opposition Treasury spokesman Chris Bowen said the government’s plan for a Medicare Levy increase should never have been proposed in the first place, despite having confirmed only two weeks ago that Labor had still intended to go to the next election with a similar levy increase.