Last week the Prime Minister announced that negative gearing would remain 'untouched' under a Coalition government.
Negative gearing is a tax concession allowing a taxpayer to offset the cost of an investment property against their other income. It encourages people to buy houses as investments.
It does nothing, however, to help housing affordability — and this is becoming a major problem, especially for younger Australians.
The government's argument in favour of negative gearing focuses on protecting investment opportunities for 'mum and dad investors'. In other words, the government would like us to believe that the policy protects 'ordinary' Australians.
Indeed the PM and treasurer assert that it is teachers, electricians and nurses who use negative gearing, much more so than finance managers — who presumably earn more.
Although some 'ordinary' Australians may be able to afford investment properties, it is most commonly used in the wealthiest electorates. Indeed in response to the government's claims, the Grattan Institute has found that wealthy Australians are the most likely to use negative gearing.
Not only is less likely to be used by 'ordinary' Australians, but one effect of negative gearing is to push up house prices, putting home ownership out of reach for the 'ordinary' Australians the government says it is trying to help.
The PM tacitly acknowledged the impossibility of home ownership for so many younger people when he introduced us to a young 'mum and dad', Kim and Julian, who had purchased an investment property while living with their parents. They could not afford to buy a family home and say that the only way they could enter the property market at all is through negative gearing.
"Negative gearing in the current economic environment promotes a significant wealth gap between existing investors and future generations."
People like Kim and Julian, and the others who cannot afford any property at all, still need somewhere to live. So, they become lodgers or they rent from the investors who own the housing stock. The result is that Australians' homes are being divorced from what has been the principal source of wealth for ordinary Australians: property.
Home as wealth
Since World War II Australia has had a largely egalitarian distribution of wealth through the Australian Dream of home ownership. Home ownership rates have been at around 70 per cent for decades.
Historically, having a largely home-owning population has ensured both the social benefit of housing, and an economic benefit through enforced saving with long-term capital growth. And home ownership became a cultural institution.
In contrast, the current negative gearing push splits the cultural and economic meaning of home ownership. It does so first because it focuses on investment. Negative gearing promotes property ownership but not home ownership. Thus the social benefits of home ownership that we have come to expect give way to bare economic indicators — how much investment is occurring.
The resulting reduction in owning our homes will mean a large shift to rental. This need not of itself be a bad thing — but there is no policy to support a widespread increase in home rental.
Apart from being a homeowner or taking the more precarious option of short-term private rental, there are few alternative, secure, housing tenures. Residential tenancy in Australia occurs largely in a private rental market with fairly weak tenant protection. A lifetime of home rental is for many an insecure and expensive prospect.
Secondly, negative gearing in the current economic environment promotes a significant wealth gap between existing investors and future generations — starting with Millenials who are at the life stage when they would expect to enter the housing market.
"What would benefit 'ordinary' Australians instead, is a comprehensive policy that addresses housing affordability, and secure housing more generally, in the current economic climate."
The 'haves' are those who are already homeowners or investors. These people can almost certainly count on long-term capital growth — a good return on their investment.
In contrast, the 'have nots' are those who are not yet homeowners, and who may never become so. They are likely to remain excluded from home ownership through a convergence of economic factors including low wages, precarious work, increasing university debt, and an inflated property market.
Negative gearing does not provide these people with an economic benefit. For government to suggest that these are 'mums and dads' who will benefit from negative gearing fails to understand the economic conditions they face.
The conclusion about the government's announcement is that negative gearing supports structural inequality. The policy is at odds with intergenerational equity in the distribution of wealth, and also in distribution of the social good of secure housing.
What would benefit 'ordinary' Australians instead, is a comprehensive policy that addresses housing affordability, and secure housing more generally, in the current economic climate. Failing to do so means that older generations will have lived the Australian Dream to the exclusion of their children.
Kate Galloway is a legal academic with an interest in social justice.
Original artwork by Greg Foyster