Retaining negative gearing is in the 'public interest'

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The debate about negative gearing’s impact on the property market seems to be showing no signs of slowing down, with the Real Estate Institute of Australia (REIA) the latest body to enter the fray.

As the Federal government engages in a back-and-forth with independent think-tank the Grattan Institute about what impacts the tax break has on the property market, the REIA claims retaining the negative gearing status quo is in the public interest.

“With large increases in house prices in Australia's two largest capital cities, there have been many claims that the current tax treatment of negative gearing and capital gains of residential property is exacerbating housing affordability issues,” REIA president Neville Sanders said.

“This is simply not the case. Indeed the public interest is being served and advanced through the current taxation arrangements,” Sanders said.

While those proposing changes for negative gearing, such as the Labor Party, claim it is detrimental to housing affordability, Sanders said there is a more pressing issue causing the price barrier many buyers face.

“There is ample research that shows that negative gearing and the CGT discount are not driving excessive, unproductive and speculative investment in housing but instead they are adding to housing supply with currently $7 billion a year invested in new dwellings,” he said.

“It is supply that is the critical factor in resolving the affordability problem. Changes to current taxation arrangements will do nothing to address affordability. If anything it will exacerbate the problem.”

Sanders also said there is plenty of evidence besides what was seen in the 1980s when negative gearing was abolished that changing the tax break will hurt renters.

“The current taxation arrangements provide many Australians with the opportunity to invest in property and augment their savings in particular their retirement savings and at the same time improve rental affordability through an increased supply of rental housing.

“The Henry Review, released in 2010, recognised that the current tax arrangements placed downward pressure on rents.”

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