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Negative gearing is the end of the Australian Dream

  • 28 April 2016


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