Fantasy Parliament: Round 2 – making negative gearing worth it

I have no stomach for the real Parliament today, as it uses its power to take away other people’s rights and punishes them for seeking refuge from suffering. So, I’ll indulge in some imaginings of what our Parliament could actually be doing.

In my Fantasy Parliament today, a great reform will be introduced, that overturns a historical anomaly in tax and housing policy that has done nothing to provide affordable rental properties and costs up to $6.5 billion per year. Yep, negative gearing. That magic rule that allows owners of properties to write off any loss they make on the income of their house or flat against the rest of their income.

Crikey’s Adam Schwab outlines some of the key flaws in the policy, particularly how they relate to affordable housing supply:

“Negative gearing encourages investors to pay far more for property than its “intrinsic value” (which is determined by the cash profits of an asset over its life, not merely what someone else is willing to pay). This is because the tax benefits of negative gearing compel investors to borrow excessively to purchase a property, so much so, that the yields on residential property are as low as 2% and most investors make a loss on their property investments.”

The problems with negative gearing are well known, and the real and profound contribution the policy makes to making housing unaffordable is also hardly a mystery. So reform is long overdue, and it’s great that the Fantasy Parliament has put this legislation on the table.

The new legislation will to two things. Firstly, it will remove the special taxation treatment of one class of assets, housing, and apply the same rules to that asset as apply to any other capital investment; with one exception.

Secondly, and this is the exception, any owner that makes improvements to the property in terms of water and energy efficiency, and in the provision of renewable energy, will be able to write off these expenses.

This exception will have several flow on effects.

  • Overall improvement in energy efficiency of private rental properties, reducing energy demand;
  • Improved energy efficiency will assist low-income households with rising utility prices;
  • Water efficiency measures, including on-site water collection, will assist in preparing for the next drought by reducing water demand.

Let’s say that this costs $1 billion per year, as landlords flock to improve their properties and make life easier for their tenants. That still gives the Fantasy Parliament an extra $5.5 billion per year for other spending.

But that’ll be for later in the week!

What’s your Fantasy Parliament legislation for this week? The real one is so awful, perhaps it’s time to dream a little. Either that, or I’m having a wine before lunchtime.


About bluntshovels

Freelance writer, with an unhealthy interest in Senate committees.
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