The ongoing negative gearing policy debate mirrors the situation of Henry Lawson’s and Slim Dusty’s Middleton’s Rouseabout who ends up owning the station because he has no ideas. Hopefully the next Treasury leader will switch the debate to real budget crisis issues.
Over the past few years Treasury has consistently argued that assistance to private superannuation is a huge budget problem and succeeded in reducing the maximum amount private individuals can contribute to about one quarter of previous levels.
At the same time, it has not focused on the massive growth in government employee spending, social welfare outlays and its own unfunded pension benefits.
The unlimited tax deductions for negative gearing don’t satisfy the need to encourage either domestic savings or efficient productive investment.
Limiting the benefits from contributing to super has caused even more tax-conscious investors to consider negative gearing strategies to reduce taxes and build wealth.
These tax arrangements allow investors to reduce their total taxable income by losing money on their investments because of the full deductibility of both depreciation allowances and interest on their debt. The government collects tax only when returns are positive or when the asset is sold at a profit. With appropriate estate planning, the capital gains tax can be avoided by astute investors forever.
The political reality is that it would be impossible to make any changes to negative gearing strategies and investments that are already implemented.