Alan Morris

There is a persistent myth that changes to negative gearing or capital gains tax rules would have a disproportionate negative impact on everyday “middle” Australians. That doesn’t stand up to much scrutiny.

Drawing on data from the federal government’s most recent Tax Expenditures and Insights Statement, we can see that in 2021-22 the total revenue forgone due to rental deductions including negative gearing and the capital gains tax discount (all capital gains, not only residential property) was $32.3 billion.

But the spread of these benefits was extremely uneven. The top 10% of income earners accounted for just under $19.4 billion in benefits. This was more than the bottom 90% combined ($12.8 billion).

As has been previously reported, members of some of Australia’s highest earning occupations are far more likely to own at least one negatively geared investment property.

22% of surgeons and anaesthetists own at least one negatively geared investment, as do 21% of internal medical specialists and 19% of psychiatrists. All of these are among Australia’s top 10 highest paid occupations.

That stands in stark contrast to Australia’s lowest paid professions. Only 1.2% of retail sales assistants and 0.2% of fast-food cooks owned a negatively geared investment property.

Jago Dodson

Negative gearing doesn’t work the same for every investment property. The size of the tax concessions a landlord can claim varies with factors including the amount of rent that can be charged on a property, the cost of operating a rental and interest rates.

In the most recent year we have data for – 2021-22 – rental income was declared on some 3.26 million properties. 41% of these were negatively geared.

Negatively geared investors declared gross rental income of $16.7 billion, an average of $12,419 per property, and deductions of $23.6 billion, an average of $17,028.

That amounts to a total loss of $6.9 billion, or an average of $4,973 per negatively geared property.

Of all the tax deductions enjoyed by negatively geared investors, the cost of interest on loans to purchase rental property is the single largest. This amounted to $10.2 billion, 43% of all deductions.

But positively geared investors – those who don’t claim rental losses – can also claim interest on loans as a deduction. But their total claims were smaller – $5.5 billion in interest.

This $10.2 billion annual “free lunch” to loss-making property investors is more than ten times the $500 million guaranteed for new housing each year as part of the federal government’s Housing Australia Future Fund. This aims to support 30,000 new social and affordable housing units over five years.

These landlord handouts come with almost no accountability or transparency which means we don’t know the social circumstances of the tenants in negatively geared properties, nor the condition of their dwelling or their tenancy.

Hal Pawson

The income tax rules that enable negative gearing by private landlords are neither new nor restricted to rental property investment. But while it’s been allowed since 1936, it only really picked up steam with property investors in about the year 2000.

That's because in late 1999, the Howard government introduced a 50% discount on capital gains tax for assets that had been held longer than a year. This arrangement meant holding rental property became a more attractive option long-term.

Many landlords now had an incentive to invest in rental properties that operated at a loss, safe in the knowledge that negative gearing could offset any short term revenue losses through tax savings on their main income.

Adding to this potent brew was a global “wall of money” searching for investment opportunities. This drove the worldwide decline in interest rates for most of the past three decades, powering the “financialisation” of housing worldwide.

Liam Davies

The Australian Taxation Office’s statistics show that in 2021-22 there were 949,519 negatively-geared investors, out of 2.27 million investors - meaning around 42% of investors are negatively-geared. Collectively, these negatively-geared investors had interests in 1,357,086 properties and had a net rental loss of almost $6 billion dollars.

There has been discussion about reforms to negative gearing, potentially limiting it for those with many properties. However, these are not the majority of investors. Only 818 negatively geared investors have ten or more properties. These investors comprise 0.09% of negatively-geared investors, own 0.8% of negatively-geared properties, and account for $45 million in rental losses.

Most negatively-geared investors - 91% - are small scale, with only one or two properties. These investors account for 77% of negatively-geared investment properties, claiming $4.7 billion in rental losses.

Part of the reason why there are relatively fewer large scale negatively-geared investors is because it becomes more challenging to carry the losses. While a negatively-geared investor with one property loses an average of $4,700 per year, a negatively-geared investor with ten or more loses an average of $54,700 per year.

Negative gearing reforms should strive to reduce costs to government, while increasing housing affordability. As such, they should look at all investors. Focusing reforms only at larger investors would pass up the opportunity to make meaningful reform to our housing system.

Alan Morris receives funding from the Australian Research Council.

Hal Pawson receives funding from the Australian Research Council, the Australian Housing and Urban Research Institute, and Crisis UK. He is also a part time unpaid advisor to Senator David Pocock.

RMIT University receives funding to support Jago Dodson's research from AHURI, the NHRA and the iMove CRC.

Liam Davies receives funding from the Australian Housing and Urban Research Institute. He is a member of the Planning Institute of Australia, Victoria division.