Which investors would be most impacted if negative gearing gets nixed?
With negative gearing once again in the spotlight, it’s worth considering who would be most impacted by any policy changes.
In a recent episode of The Smart Property Investment Show, Right Property Group director Victor Kumar shed light on an interesting angle of the notorious negative gearing debate, discussing with SPI’s Phil Tarrant the possible impact that the removal of negative gearing could have on average “middle Australia” property investors.
Kumar cited the latest findings from the Australian Taxation Office (ATO) concerning property investors in Australia, the data showcasing that at the time of 2020–21, there were a total of over 2 million property investors within Australia.
“So if there are over 2 million investors in Australia, the bulk of them are your ordinary mums and dads who are earning $150–180 thousand as a household,” he stated.
Kumar expanded upon this point in correlating the notion that the majority of property investors are “middle Australians”, with the recent downswing of the number of property investors being attributable to ever-increasing interest rates and lower affordability of investment properties for the average Australian family.
“When you look at that and then when you add this negative gearing impact, we’re going to reduce the number of investors again, some will sell up because they’re negatively geared and need the tax deductions. There are others that will say, ‘Oh, I really wanted to save my tax, and that’s the reason to invest’, so they won’t invest,” Kumar said.
Kumar spoke further about how this trend of hesitancy among “middle Australian” investors grows even more grim when you factor in the notion that conditions have become so prohibitive for the average property investor that throughout later 2023 and 2024, the net number of property investors has gone down as a whole.
“So it will reduce the number of property investors, and as a direct consequence, we are already in a rental shortage, there will be even more of a rental shortage, so the system that they are trying to fix, they are breaking it yet even more,” he said.
Kumar was adamant in his belief that the possible removal of negative gearing is far from the reform needed to make the housing market more equitable and instead could serve as a possible death knell for the prospect of middle Australian property investors entirely.
While the Australian Greens Party is pushing for the tax concession to be scrapped, Prime Minister Anthony Albanese and Treasurer Jim Chalmers have continued to signal that changes to the tax code for property investors are not on the table.
Kumar stressed that as politicians consider future tax policies, they would do well to remember “who they are really taxing”.
Listen to the full conversation with Phil Tarrant and Victor Kumar here.