The growing push to abolish or scale back negative gearing received a big boost when the Reserve Bank of Australia called on the government to review whether a capital gains tax break for investment property is driving too much money into housing. In a surprising intervention in the debate over housing affordability, the Reserve Bank effectively questioned two Howard-era decisions that it argues have increased incentives for Australians to ramp up riskier housing investment at the expense of first-time buyers.
While the Reserve Bank acknowledges that negative gearing can help keep rents down, it says how it works with other tax rules “may have the effect of encouraging leveraged investment in property. “The bank believes there is a case for reviewing negative gearing, but not in isolation,” the central bank said in its submission to the federal parliament’s home ownership inquiry. “It’s interaction with other aspects of the tax system should be taken into account.”
The call adds considerable weight to a push by a growing group of experts and business leaders who question the favourable tax treatment of housing at a time of growing community angst over affordability, particularly in Sydney, parts of which Reserve Bank governor Glenn Stevens has described as “crazy.” While affordability, measured by how much households spend of incomes on loans, has hovered between 20 and 30 per cent and remains well-below record peaks, younger buys need more of their incomes to build up a deposit, the bank says in its submission.
