Abolishing negative gearing a recipe for disaster

Both sides of politics have acknowledged the importance and value of negative gearing. In 2003 when the subject last surfaced as an issue, then Opposition Leader Simon Crean remembered the consequences of 1985, saying the removal of negative gearing would have “serious consequences” for the building industry.

Prime Minister John Howard was even more damning, describing the abolition of negative gearing as “just one of those crazy ideas that people who don’t understand the economy play with”.

The abolition of negative gearing and other tax breaks which the Business Coalition says must be traded to pay for its general tax reduction, takes a valuable tool of regulation out of the hands of government. One example: if it were decided that a major research and development effort into finding an efficient hydrogen fuel cell for cars was needed, then a targeted tax concession would ensure the funds for such a project became available.

By following the Business Coalition’s proposals the government would lose the leverage of the tax system to advance national priorities. Given the existing demand for rental accommodation, surely the proposal of the Business Coalition must also advocate increases in government spending for social and public housing alternatives? Few would doubt that such an option would be considered by government or pose a cost-effective solution to that which currently exists.

HIA has never resiled from the need for tax reform, and in the past has contributed actively to the debate. However, this proposal can only result in soaring rents, deteriorating affordability and a collapse of the housing industry - an industry so vital to the ongoing success of the economy. The Business Coalition’s proposal signals a return to the bad old days of the mid-1980s, a decision Australians can ill afford.