Last Nail .. when you've actually experienced negative gearing yourself .. come back and tell me all about it.

The real winners are:

1) the banks and

2) the govt

Yes .. true.

That part of the equation is indeed true Last Nail.

Not a good idea to link these two issues IMHO.  The medical research funding issue is urgent - cabinet leaks suggest that the government is determined to return the budget to surplus by 2012-2013, even by resorting to slashing NHMRC funding in the May budget, which would be disastrous. Progress on new vaccines, treatments and cures would grind to a halt and thousands of brilliant scientists would lose their jobs.

People who want to get rid of negative gearing are generally worried about housing affordability and believe that we have a property bubble driven by highly leveraged speculation, and that it will soon burst.  The market will determine whether this is true or not. But don't bother trying to convince the government to fix it urgently. They only make things worse - as seen by worsening affordability after boosts to the First Home Buyers' Grant. I would support stricter limits on LVRs to reign in over-leveraging. But the government won't risk causing a significant slump in real estate prices, because look at what has happened to the economy of every other country that has experienced a real estate slump!

Sir lastnail wrote on Apr 15^th, 2011 at 2:01pm:



Last Nail it isn't only fat developers that negative gear.  I would never have afforded a house being a single female on below male rate wages (but that's another gripe) without neg.gearing.
I was able to put a fair deposit on a house and then rent it out and that rental income and the neg.gearing deductions allowed me to manage the repayments.  That, you'll be happy to hear, made me a 'first home owner'....long before all these new handouts came in.

Another point to ponder is that if no one invests in housing then where will renters go???  Not every person will be able to afford a deposit on a house as a 'first home owner' on the day they leave home, they'll need to live somewhere. 
Rental property investment is a business.  Businesses take risks.  Businesses get concessions for costs entailed in making an income. Shop fittings, maintenance etc is no different to house fittings and maintenance..if the money isn't spent then income can't be made.  Do you believe that people offering accommodation aren't entitled to make a return on their outlay?

When I bought my place I couldn't claim the interest as a tax deduction. 

If housing affordability is, in part at least, a function of government tax policy, then it is not clear why negative gearing deductibility is available for second-hand property. One of the main reasons given for its use is that it encourages property investors to supply accommodation, thereby helping renters. The fact is that the "only investors who actually add to the supply of accommodation are those who build new accommodation. Therefore, if negative gearing deductibility were really intended to maximise the supply of accommodation, it would be allowed only for new construction — not for future purchases of established properties."

http://en.wikipedia.org/wiki/Negative_gearing_%28Australia%29

Opponents of negative gearing say,

    * It encourages over-investment in residential property, an essentially "unproductive" asset, which is an economic distortion.
    * Investors inflate the residential property market, making it less affordable for first home buyers or other owner-occupiers.
    * In Australia in 2007, 9 out of 10 negatively geared properties are for existing dwellings, so the creation of rental supply comes almost entirely at the expense of displacing potential owner-occupiers. Thus, if negative gearing is to exist, it should only be applied to newly constructed properties.
    * It encourages speculators into the property market, inflating for instance the Australian property bubble that began in the mid-1990s, partly the result of increased availability of credit that occurred following the entry of non-bank lenders into the Australian mortgage market.
    * Tax deductions and overall benefits accrue to those who already have high incomes. This will make the rich investors even richer and the poorer population even poorer. If this prolongs and create a social divide, it will bring the Australian society back to middle age, where there was a clear gap between landlord and peasants (landlords and renters). (One can see from the rules above that the break-even point for those on high tax is less than the break-even for those on low tax, though the latter then give up a lesser portion if they make an overall gain.)
    * Tax deductions reduce government revenue by a significant amount each year, which either represents non-investors subsidising investors, or makes the government less able to provide other programs.
    * A negatively geared property never generates net income, so losses should not be deductible. (Deductibility of for example business losses when there was a reasonable expectation of gaining income is well-accepted, the point against negative gearing is that it will never generate income. Opponents of full deductibility would presumably at least allow losses to be capitalised into the investor's cost base.)