Proposal to limit negative gearing could impact investment market

Proposals to limit negative gearing and reduce capital gains tax concessions could cost a Labor government up to $32 billion over 10 years and disincentivise investors, according to research by a property investment body.

Modelling by the Property Investment Professionals of Australia (PIPA) has found that limiting negative gearing to new investment properties as well as reducing the capital gains tax discount will drive investors out of the market and leave a hole in government coffers.

PIPA chairman Peter Koulizos said the research showed that Labor’s assertion that their policy would save $32 billion over a decade was a flight of fancy when it was actually set to lose that amount because of fewer investors in the market.

“Not only that, investors already pay almost four times in capital gains tax what they receive in negative gearing benefits over a 10-year period, so the government is already ahead financially,” he said.

The PIPA modelling found that an investor who bought a $675,000 property today would receive about $23,583 in negative gearing benefits over a decade, but they would pay $104,703 in capital gains tax if they sold the asset – leaving the federal government with a $81,118 net gain. The modelling found that a Labor government could lose between $10 billion and $32 billion over 10 years, plus fewer investment properties would drive rents higher and further hinder first home buyers from entering the market.

The modelling found:
• If investment activity reduced by 15 per cent there would be 390,000 fewer properties available for rent with the total loss of capital gains tax revenue
to government being $31.6 billion over 10 years.
• If investment activity reduced by 10 per cent there would be 260,000 fewer properties available for rent with the total loss of capital gains tax revenue to government being $21 billion over 10 years
• If investment activity reduced by five per cent there would be 130,000 fewer properties available for rent with the total loss of capital gains tax revenue to government being $10.5 billion over 10 years.

Mr Koulizos said the modelling was not even worst-case scenario, given 45 per cent of investors indicated in the 2018 PIPA Investor Sentiment Survey that they would put their future investment plans on hold if Labor brought in the proposed changes.