Housing isn't a productive part of the econony? Take a drive around Bankstown (Sydney), look at the houses being upgraded, that is meaningful employment in construction, a productive part of the economy. All across Sydney the free-standing housing stock that remains is upgrading from weatherboard to brick - all employing people. Non cash deductions derived from investment property improvements depreciating are generated from the productive economy. All those new curtains, floors, staircases, garages, gardens, solar hot water tanks, the list is endless - that is thousands of retail, services, manufacturing, tradesmen, designers, consultants, maintainng their employment in their productive parts of the economy.
Armstrong suggests govt's just print money to raise revenue, and no taxes. I think that this combined with a land tax (and investment loan debt levy to mitigate inflationary windfalls) could work OK. Keep some tax on Corporations but low for competitiveness. Oh and a once off 90% tax on trusts and property smsf's and neg gearing parasites. Followed by once off 90% tax on these parasites every year ever after. Abolish all other taxes and people on welfare will be encouraged to work. Too bad the govt loves dependents; makes them feel important.
Do you work for the EU? They absolutely hate the British Common Law legal instrument of Trusts too. Hey, what did the little guy do to you? Not really worth neg gearing in a SMSF anyway, more sense to be pos geared or buy outright.
Housing is built to house people. The actual construction part is productive but the ownership part isn't. One part of the population paying rent to another part of the population does nothing for economy itself. If money 'invested' into housing was instead used to invest in productive companies which create products and jobs, or commercial property such as shops, offices or factories that employ people and make stuff or provide services, the economy as a whole benefits. Are you sure you understand what negative gearing actually is ? Negative gearing is NOT the deductions - it is the offsetting of an investment loss against non-investment (ie earned) income. You can still have non cash deductions without negative gearing. Any loss on the investment can be carried forward to later years to be offset against future profits. Just like capital losses cannot be applied to income but are carried forward to be applied to future capital gains. Losses of a company are carried forward to be applied against future profits.
I only wanted to focus on that part of negative gearing, there are numerous aspects to it, of course. Many people do go into NG (rightly or wrongly) for the non cash deductions creating the investment loss, in amongst the interest payments etc that are the directly or physically felt losses.
More to the point, housing is a major consumption item that people desire. The whole point of the economy and people working is to supply the things that we want. Besides, the whole demonisation of negative gearing is nonsensical.
Bordsilver - your comment about negative gearing being fully consistent with standard taxation principles is not quite right in my humble opinion. For instance, a person earning a salary is prevented from deducting the cost of travel to and from work from their salary even though said cost is clearly incurred in the generation of the income. However, travel to and from the negatively geared property to say, perform repairs is deductible, even against salary income. There are numerous examples of these kinds of inconsistencies (for instance clothes that are only worn at work and purchased solely for work are not allowable deductions). So negative gearing a property does enable deductions not given to other forms of income. Other things like capital gains being taxed differently (less) to earnings is another distortion that creates inconsistencies. So I would say negative gearing as it is currently implemented is highly inconsistent with current taxation principles. The answer as I see it is to set everything on a level playing field. That of course is highly unlikely.
Boyracer you're comparing income from personal effort, ie salary and wages, and income from a business, ie an investment property. Different types of income, and entirely consistent with current taxation principles.
@ Boyracer, our progressive income tax system on individuals which is substantially different to businesses is the inconsistency. We should be able to claim all expenses incurred in deriving our incomes just like businesses can. Instead we can't claim certain categories and we have tax free thresholds etc instead. To have someone in a situation where a given positive income stream is taxed but the tax rate disregards another negative income stream even though the negative can send someone into bankruptcy is bad tax policy. It's the same entity.
nope wrong. As per Bordsilver's post (which I'm assuming you agreed with as you thanked it) all income for the individual should be bundled together and not treated differently. Why is a deduction for a negatively geared property able to be deducted against ALL income, even that from personal effort but a deduction for personal effort is unable to be deducted against ANY income. It is highly inconsistent. I suspect you do not fully understand bordsilver's argument. Agreed - you will notice I said that everything should be on a level playing field but that it is currently not and that therefore to say negative gearing is consistent with current taxation policies is incorrect when those self same policies dictate certain deductions for personal effort are non-deductible while being deductible against income from an investment property. I did not say negative gearing is good or bad (my views on it are not relevant) - my point was that the system as it stands is highly inconsistent. At the very least changes should be made to remove these inconsistencies. Again, I highly doubt this will ever happen. I think it should be taken even further and income tax should be levied on a family as opposed to an individual - you can get perverse outcomes with our current model. A (low) flat tax rate for all earnings regardless of source or quantum is my preferred tax setting. The tax system could be made to be quite simple, fair AND consistent with the huge deadweight costs of compliance reduced to a bare minimum. It is quite telling that governments have zero interest in that outcome.
Rephrase to be "consistent with sensible taxation policy" (not that any taxation is sensible, of course).
I think you misunderstand me. I agree with the way it SHOULD be, all income bundled together. I was pointing out the current taxation principles as they stand in existence in legislation and operation by the ATO. Currently, we all live with personal and investment income being treated in separate ways. I thought from what you were writing that you didn't understand that. If you do, well and good. If you're arguing that negative gearing is contrary to I don't see how, when it forms part of the current taxation principles.
