The end of negative gearing as we know it? Spender calls for new income tax system

The Age

a day ago

Spender's plan would mean property losses could only be used to offset taxable income on other capital investments, or carried forward to tax paid on capital gains when they are sold.
She said the current tax system acted as an incentive for people to sink money into property, but was a disincentive for someone who wanted to boost their skills or work. Moving to a dual-income system would limit the attractiveness of negative gearing and trusts.
'You should be rewarded for investing in yourself, not for expanding your property portfolio,' she said.
'We're taxing young people when they aren't getting high pay, and they're facing high costs such as buying a home or childcare. It's actively working against young people.'
In the 2022-23 financial year, 1.1 million people made a net loss on their property investment, with a similar number either breaking even or recording a profit. The number of negatively geared investors is expected to grow due to the rise in mortgage interest rates that began in 2023.
Spender said any change would require a transition period to enable people to adapt to the new system.
She said her proposal would be budget neutral, as extra tax collected on property investors would be used to either cut personal income tax rates or lift the thresholds at which tax rates change.
She said the current tax system was using bracket creep as a 'silent driver' of budget repair, while her proposal would encourage people into the workforce and reward those who depend on wage income.
'We're not incentivising people to be the best that they can be, but how much they can put into property. We can't keep doing that,' she said.
Her proposal emerged as the Reserve Bank released research showing that a fall in competition across the economy since the early 2000s had directly contributed to Australia's slowdown in productivity that is costing every person up to $3000.
Loading
RBA economists Jonathan Hambur and Owen Freestone found that if competition were around the level it was at the turn of the century, overall productivity would be 1 to 3 per cent higher, and the economy up to $80 billion larger due to a better allocation of business resources.
'This shows that declining competition has been a significant drag on productivity, and therefore GDP and incomes,' they found.
'These are important findings. They suggest that declining competition in the Australian economy can account for a significant portion of the slowdown in productivity growth, and therefore growth in incomes and living standards.'