The negative gearing ‘whack-a-mole’ continues, with Treasurer Joe Hockey repeating the lie over the weekend that negative gearing is being used primarily by ordinary workers. From The Australian:
In his strongest warning yet against changing the tax breaks, the Treasurer told The Weekend Australian there was “no merit” to amending the rules on negative gearing for residential property…
“Negative gearing is a way for people on medium incomes to get into the property market,” Mr Hockey told The Weekend Australian. “Many hard-working Australians have invested money in real estate … to give themselves some financial security”…
The government analysis shows that 22.6 per cent of police use negative gearing, a bigger proportion than the 17.3 per cent of tax accountants, 16.7 per cent of management consultants and 11.9 per cent of university lecturers. It also finds that 19.2 per cent of ambulance officers and paramedics use negative gearing compared with 17.4 per cent of financial advisers and 15.6 per cent of economists.
And it concludes that 18.9 per cent of train and tram drivers use negative gearing compared with 17.2 per cent of solicitors and 18.6 per cent of real estate agents.
Just because the Abbott Government repeats a lie often enough does not make it true. The ATO data which the government relies on to claim that negative gearing is used primarily by “middle Australians” is fatally flawed because it relates to “taxable income”, which is what is left after deductions such as negative gearing are accounted for.
Even using this flawed data, those with taxable earnings below the average of $55,228 in 2012-13 (the latest available data) claimed only $4,645 million, or 39% of the total negative gearing losses, with those earning above the average claiming $7,400 million, or 61% of total negative gearing losses:
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So, based on the ATO statistics, which significantly understate the magnitude of the issue because negative gearing lowers taxable income, the claim that most people who access negative gearing are “middle Australians” is false. 61% of losses were recorded by those with above average income, even after their reportable incomes were reduced by far more than the average due to negative gearing deductions.
Other analysis that correctly measures gross income or household income is even more damning of the Coalition’s claim.
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For example, the RBA noted the following in its submission to the House of Representative’s Inquiry into Home Ownership:
Tax data also show that the incidence of property investment and the incidence of geared property investment… increase with income…
While the incidence of property investment increases with the level of income, the Household, Income and Labour Dynamics in Australia (HILDA) Survey also suggests that most investor households are in the top two income quintiles. These households hold nearly 80 per cent of all investor housing debt…
So, the top 40% of income earners hold nearly 80% of all investor mortgage debt, according to the RBA.
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Modelling from the National Centre for Social and Economic Modelling (NATSEM) also revealed that one third (34.1%) of the benefits of negative gearing were captured by the top 10% of income earners, whereas 15.7% of negative gearing benefits goes to the next 10% of income earners (see next chart).
So that’s the top 20% of income earners receiving around half of the negative gearing benefits, according to NATSEM.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
