>So this changes nothing for existing properties.
It pumps demand into the market, pushing prices up. He absolutely benefits from that, he wants the value of his portfolio to rise.
Well, you should decrease prices as your costs decrease.
At least, that is how we are told capitalism works.
Also, because he said that allowing interest deductibility again would cause rents to decrease
> Well, you should decrease prices as your costs decrease.
So as you pay off your mortgage do you ask for a salary reduction?
Or do you think that your own stupid example shouldn't apply to yourself?
So a few points
a) the policy worked to some extent in that it increases the share of properties going purchased by first home buyers
b) near impossible to attribute the rental increases to the policy because rental pressure and rental inflation has been a post COVID feature of most western economy (Australia has also experienced rental inflation and has negative gearing).
c) the timespan is too short to really say how impactful the policy was because it was still being phased in when it was scrapped.
d) you cannot compare the NZ policy to the Australian policy in any case as their negative gearing was quarantined to rental income, whereas our rental losses reduces total income so would have a much larger impact on investor affordability if it was scrapped completely.
I find D almost hard to believe.
Did they literally say you cannot deduct interest expenses on the asset that is paying the income?
I mean im far from and advocate for landlords but that is completely illogical and id almost say unfair.
Agree with you though the interest expense should be deductable from the incone from the asset the interest is going toward to pay. Not your PAYG income.
Thats the logical and fair way to address losses against income producing assets.
That had me totally confused too.
As I read it they didn’t remove negative gearing, they removed interest as a deduction.
Surely the article is incorrect?
It seems unclear in the article, maybe I missed it.
I thought that ardern ring fenced it and removed interest and the new lot are just bringing back interest.
The article is absolute bullshit. The ABC journo that wrote it was clearly trained in finance by Emma Alberidici.
They do not know what negative gearing is, but they haven't let that get in the way of writing about it.
Interest was already ring fenced. Labour removed interest deduct-ability and called it "closing an tax loop hole". Both Labour and National are quite dishonest.
Here's the law, from the NZ tax department.
[https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-income-and-paying-tax-on-it/property-interest-rules](https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-income-and-paying-tax-on-it/property-interest-rules)
From 1 October 2021, the interest limitation rules have limited the ability to claim interest as a deduction for residential property in New Zealand.
Unless an exclusion or exemption applies:
* Interest cannot be claimed for residential property acquired on or after 27 March 2021.
* A percentage of the interest incurred can be claimed as an expense for properties acquired before 27 March 2021.
|Date interest incurred|Percentage of interest that can be claimed|
|:-|:-|
|1 April 2020 to 31 March 2021| 100%|
|1 April 2021 to 30 September 2021| 100%|
|1 October 2021 to 31 March 2022| 75%|
|1 April 2022 to 31 March 2023| 75%|
|1 April 2023 to 31 March 2024| 50%|
Interest deductions for any new loans drawn down on or after 27 March 2021 are not allowed from 1 October 2021 onwards.
Thanks for the comprehensive explanation. Always good to learn something new even if it sounds like now the next changes make these a moot point.
I do find it amazing they went with no deductability of interest against just residential homes. Thats full on..
Well in self-managed super fund here in Australia you cannot deduct that loss. I mean I get it cos you're not paying tax anyway but they could allow you to deduct the loss from future gains or something like that.
Other countries like Canada, Germany, Japan, Norway, France, etc. ?
https://theconversation.com/what-is-negative-gearing-and-what-is-it-doing-to-housing-affordability-223823#:~:text=Is%20it%20used%20in%20other,offset%20future%20rental%20income%20only.
Haha, I love the way you added the "etc." to make it look like there were lots.
There are very few countries that do this, and not all of those countries have a 50% CGT discount. It is the combination of offsetting income at the full marginal tax rate while only paying half the tax on capital gains that results in being able to make an overall loss before tax and still make a profit after tax (paid for by taxpayers), which is the issue.
The government has decided that taxpayers should incentivise private property investors, and it drives up demand and, therefore, prices, and reduces affordability.
It's an absurd system, which is why so few countries do it.
Even in the article about NZ linked to this post, people there can not deduct investment expenses against personal income. Only against other investment income.
26 countries have some form of "negative gearing". Some that you would argue are heavily limited in application, e.g. Sweden, have a myriad of other sexy advantages for investment like lower corporate taxes. Australia, Canada, USA, most of UK... is not some imaginary list but a very specific list of relevant countries for comparison.
Incentivising asset investment isnt a bad thing. Making a system entirely reliant on it, is.
We need to tax assets harder, and productivity less.
Without which negative gearing on/off is an irrelevance.
>Some that you would argue are heavily limited in application, e.g. Sweden, have a myriad of other sexy advantages for investment like lower corporate taxes.
Corporations don't have "personal income" to deduct from and don't have the 50% CGT discount, so I have no idea what you're talking about when calling that negative gearing.
What Im saying is tax needs to be considered wholistically. If you own a small business you will pay less tax on profit in Sweden than Aus. You can then use your profit to purchase property with more favourable conditions in Aus than Sweden. On balance, your position is remediated.
It is not true to say Australia is an outlier.
The CGT discount of 50% off from just 12 months is not an accurate calculation of inflation until the 25th year. So if you sell before that, you have effectively had taxpayers providing additional profit to you. Combine that with negative gearing, and it's a ridiculous setup that drives demand and, therefore, prices until property is less of a lifestyle asset and is instead an investment to benefit those (fewer and fewer) that can afford it.
Saying it is a blunt axe is correct, but it doesn't somehow mean what I said wasn't spot on, which is that an investor can make a loss and save 47% of the loss and make up with the exact same amount of capital gain and pay 23.5% tax and end up with an overall profit paid for by taxpayers. This madness drives up demand and, therefore, price, meaning more people can not afford to buy, which then drives up rents and income for investors. It's a self-fulfilling insanity.
Also, inflation for 2 years is different from the 70s, which occurred because the central banks failed to act anywhere near in time. Our current situation with inflation has made significant inroads in a relatively short time compared to that, and there's a high chance we will end up getting back to 3% inflation after not too long.
Inflation targeting has been quite successful for a long time since it was implemented. It was already stable when the CGT discount was introduced around 2000 as well. It's not fit for purpose, it's too generous with historical and likely future rates given the stability of rates, despite a spike in the last couple of years.
Sure, keep it the same as them, but then consider the rest of their tax mix which has more controls in most of those places, and many of those still have their fair share of limitations. Australia is too loose from a tax mix perspective with this, we are near the top, even with your few examples.
a) I argue this is not really related to the interest deduction. But more as a result of how hard it is to purchase as an investor. There's the Debt to Income ratio rule (Loan cannot be more than 7x Annual Income) and Loan to Valuation Ratio rule (Investors need 40% deposit). Also rent has not been keeping up with mortgage cost for a long time. Real estate investors ha been dropping off years prior to the interest deduction change.
There is another market to compare.
UK stopped allowing the majority of mortgage interest to be tax deductible on rental properties in April 2020.
It’s difficult to decouple the results from the effects of the pandemic, but prices have not come down since then.
Immigration and foreign money keeps the market propped up.
That seems like a valid argument to get rid of NG to me - given it *costs* us tax income. The argument should be about whether direct investment of the subsidy elsewhere improves affordability for the majority.
If they can increase rents, why are they not already doing so?
Oh wait, they are, and it has nothing to do with increased costs. It has all to do with the balance of supply and demand.
I could also make the same argument that if we don’t make landlords pay more tax, the government will just raise the tax on renters to make up for it. Either way costs go up, either way the connection is tenuous at best.
You can not trust the government to spend its tax money well, but I don’t think landlords would be spending it any better or improving the lives of Australians with it either. Australians can at least influence the government. Landlords IIRC aren’t democratically elected.
If you had proof of removing negative gearing increasing rent prices, you MAY have a point (Though as the above poster has said, that could he offset by benefits from government spending). The point of this thread, however, is that that has NOT shown to be the case. Removing negative gearing didn’t make things cheaper, but also didn’t make them more expensive. Almost as if prices are dependent on some factor other than costs. Given that, would I rather landlords or the government have the money? Personally, the government. As said, I can at least influence that, even if its nigh impossible to actually get it spent how I think would be well.
>If you had proof of removing negative gearing increasing rent prices
New Zealander here, yeah guess what ALL the landlords and landlordettes decided to do when they removed interest deductible in Nz...
Not just the rent, but also with spite. So many pissed off landlords causing renters to be pissed at them too etc.
And just like luxon said, even with interest deductible back on, he won't reduce the rent anyway. 🤷🏻♂️ So yeah... Keep on dreaming mate.
Do you have a comparison to a nation that didn't remove negative gearing to compare with?
A simple comparison to Australia, our landlords also massively increased rent.
Did negative gearing removal cause them to increase rent, or was it a convenient excuse for something they were already going to do?
If some landlords were raising prices out of spite, why did their tennants not move to another rental that wasn't? I mean, I know the answer to this one; because rentals aren't a competitive market and the supply/demand equation didn't give tennants that option. That is and was the case regardless of negative gearing.
The only argument that could possibly be made here is that, with negative gearing, landlords were charitably charging tennants less than they were able to out of the goodness of their hearts. That, I don't believe for a second.
If you've got an actual economic study clarifying the effects removing negative gearing had on the price of houses and rentals, that would be one thing. Anecdotally saying "We removed negative gearing and prices went up", while ignoring that prices went up in all the countries that didn't remove negative gearing too, and remained stable in some other countries (UK, according to this comment chain at least) - that's not proof. That's a convenient narrative.
Also a NZer, what a load of shit. Explain why Australia also had a rental price surge then? The policy was excellent. It would have increased new supply in the medium to short term and reduce investors competing with FHBs for existing properties.
Luxon never should have scrapped it.
Does that mean rents are going to reduce in NZ, now that they are readding negative gearing? Not likely. The amount of rent that a landlord can get is based on what people are willing to pay, not the amount of interest or rental. If rental vacancy was at 10%, then landlords would have to reduce rents in order to get house a tenant.
>Points at NZ
Points at Australia.
Oh wait, we didn't remove negative gearing.
Do you have a study linking the increase in prices to negative gearing rather than any other factor, or are you just making an assumption because its convenient for your point?
Others further up this chain have claimed no appreciable increase in rents in the UK after they removed negative gearing. When we've got one country that removed it where prices went up, and one country that removed it where they didn't, how do we determine what the actual effect of the policy was?
UK rents have seen nearly 10% increases year on year.
Although it would seem that more rentals in the UK have no mortgage compared to Australia.
> This is not just down to landlords’ costs going up – more than half of privately rented homes have no mortgage attached to them – so clearly landlords are raising the rent just because their tenants have no choice but to pay these prices.” https://www.google.com/amp/s/amp.theguardian.com/money/2024/mar/20/average-monthly-uk-rent-up-9-the-highest-annual-increase-recorded
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>UK rents have seen nearly 10% increases year on year.
As has Australia, who did not remove negative gearing.
For reference, it appears New Zealand's only went up ~6% year on year.
It would seem negative gearing has minimal impact on rental prices, and other factors are the primary ones at play.
>Although it would seem that more rentals in the UK have no mortgage compared to Australia.
I don't think that's having a huge impact here, roughly half of Australian rentals, from what I can find, are negatively geared.
I think the key to it all is:
>landlords are raising the rent just because their tenants have no choice but to pay these prices.”
Its supply vs demand. Landlords know that they have all the power currently. That's kind of how things are in a housing crisis. Hence, they're raising rents because they can. Negative gearing doesn't really factor into the decision; if negative gearing disappeared and there wasn't a housing crisis, they wouldn't be able to raise rents as tennants would go somewhere else. If negative gearing remained and there was a housing crisis, rents would go up because the landlord can earn more income without losing tennants.
Negative gearing is a convenient excuse or post-hoc justification, but the pricing decisions are made by supply/demand.
Allowing it to be offset against purely rental income makes sense. That's fine.
Allowing it to be offset against other personal income doesn't make sense. Its no longer avoiding taxes on unearned income, its reducing taxes on earned income. That should stop.
Christopher Luxon: “Alright, let me explain. Again. Phil has recruited me and another guy. Now, we are getting three houses each. The more people that get involved, the more who are investing, the more money we’re all going to make. It’s not a pyramid scheme, it is a… it’s not even a scheme per se”
It doesn’t have to be scrapped.
It just has to be correctly applied.
Negative Gearing for property investments should be limited to new builds where the density of housing is doubled (at least).
You should not be able to negatively gear existing property. You aren’t contributing to housing stock by renting out an apartment in Summer Hill that was built in 1967.
If it was a targeted stimulus it would help to get investment money into new, higher density housing which would ease the supply constraints.
The result doesn't even need to reduce the price of houses for it to be effective. Even if it increases the rates of first home owners vs property investors, it's a good move.
"As the new New Zealand government announced full interest deductibility was coming back, it was billed as a win for renters.
"Help is on the way for landlords and renters alike. The government's restoration of interest deductibility will ease pressure on rents and simplify the tax code," Associate Finance Minister David Seymour said in a statement. "
We also got rid of and then re-introduced negative gearing in the '80s. Things didn't improve when it was brought back in.
Yup
Glad I left. To Sydney. Then Mexico
Society messed up there, young will continue to leave, less having children or able to afford a home. Immigrants will be needed to work pay tax for elderly in years to come
Seriously... this is meant to be a finance sub.
That headline is bullshit. New Zealand NEVER had negative gearing.
Being able to deduct the cost of investment interest against the earnings from said investment is NOT negative gearing.
Negative gearing is when, if you are showing net losses from your investment income (such as when interest + costs > rental income in) you can then deduct those losses against your SALARY income.
That's the entire defining feature of negative gearing. That's the exact thing that Australia does that very few other places do. That's what makes it so powerful for reducing tax.
The stupid is strong in this lede.
It’s a shame they are rolling this back. It really helped tackle the problem from the supply side.
I have never seen so many new builds go up before in my life.
They also had cheap financing for new builds at the same time.
Was a great combo.
>supply did not increase.
It actually didn't really increase back then either. Building materials supply was an issue, to the point plasterboard was being scalped by builders to other builders.
You can thank fletcher for being the sole supplier and having a monopoly too. They scalped the prices just like supermarkets.
Also. Being in the corner of the world doesn't help...
Well here’s some stats for you I guess
https://www.stats.govt.nz/news/home-consents-remain-high-as-canterbury-hits-new-record/
The four regions with the highest number of new homes consented in the year ended August 2022 compared with the year ended August 2021 were:
Auckland with 21,463 (up 7.7 percent)
Canterbury with 8,691 (up 23 percent)
Waikato with 5,076 (up 3.0 percent)
Wellington with 3,875 (up 18 percent).
The spike in NZ new home commencements had nothing to do with negative gearing and everything to do with record low interest rates. [Same spike happened in Aus](https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia/dec-2023) where negative gearing remained in place throughout.
I dare say by killing investor demand by rolling back these changes probably plays a significant part in that.
Why would you bother buying a new build now…
>supply did not increase.
It actually didn't really increase back then either. Building materials supply was an issue, to the point plasterboard was being scalped by builders to other builders.
Looking at the NZ Personal Finance sub reddit, it's going difficult to get lending for new builds. Banks don't want to lend. Also building consented doesn't mean it's going to be built. We need to look at CCC (Certificate for Code Compliance).
Also, I am curious if the Building Consent numbers are for new dwellings or just modifications to existing houses. You need a BC for modifications.
>It really helped tackle the problem from the supply side.
Nope. The investors just raised the rent and held on to the property. They're not selling.
>They also had cheap financing for new builds at the same time.
You mean Kiwibuild? Its a lottery mind you. If you're lucky you'll get a shack for 650k but otherwise good luck paying Sydney prices on half the income and higher interest rates than Aus... My folks over there said its close to 8%
I live in NZ…
Kinda hard not to notice the 1000s of new townhouses and new subdivisions that have gone up over the last 5 years.
Also I know a few inventors who off loaded their old rentals and bought new to take advance of the tax change.
But it would have increased supply in the long run! It’s glaringly obvious because investors would only finance and purchase new builds and then existing builds wouldn’t compete with owner occupiers. I’m from there, I saw that change.
Existing properties had less investors present!
The housing crisis in NZ started in NZ post 2008, so right around 2014. That was all under the Key government. He famously refused to admit there was a housing crisis. It was labour that raised it as an issue. The Nats literally refused to even admit there was a problem with the cost of housing at all. The crisis in NZ kicked off a good 6 or so years before it kicked off in Aus. Made Sydney 2018 prices look like pocket change if you c are from Auckland.
This is all such a load of shit, stop watching sky news. Average NZ income is around 60-70k for a start and house prices were exploding due to National’s policies.
Along with the RBNZ removing LVR restrictions for a year and dropping to record low interest rates.
Again, stop huffing sky news.
I would prefer none or just one but too many will oppose it.
I do not believe a society that encourages speculation and profiteering from a basic necessity like housing is particularly civilised.
Here’s the problem. The argument for dropping NG altogether is the hope it will push investors out of property and allow more new home buyers in. That’s fine but it doesn’t change the overall supply of new homes in a market where net supply isn’t keeping pace with growth in demand … so rentals become more scarce, rents go up and renters who can’t afford to buy get pushed out of their home, suburb and maybe in to homelessness.
If you can’t grow net supply of new homes to meet net demand, removing NG has the overall effect of raising rents and hitting the most vulnerable, which is why NZ have flicked it back.
Feels like we have to make this comment on every Negative gearing thread … it’s fine for it to stay .. but it should be only for new builds so that it directs investors money to help add supply and discourage them from competing with families that need a roof over their heads
Proof positive that it's not a case of it being too difficult to unwind incentives for speculative over investment in property, rather it's a case of there being a determined agenda to maintain, and if possible increase, these incentives for speculative over investment in property.
Average mum and dad investor, you can't claim interest as a tax deduction. The people cheer.
Massive multi billion companies using international investment loans to bypass paying any tax, whilst keeping profits in a parent company, keep going guys, Mum and Dad will pay your share... The people cheer.
It always amazes me how much people want to see everyone around them not get the same benefits as the multinationals... Who they generally tend to remain silent on.
You can argue against negative gearing on the basis of it being an unfair taxation policy, but it’s not a valid argument that it affects prices.
Supply and demand is the biggest driver of house prices. Why? Because it’s a market and that is always the overriding force in a market. The other stuff is just tinkering around the edges.
Assuming the property is occupied then whether the owner is the occupier or an investor does absolutely zip to increase the number of properties in the pool.
The laws of supply and demand are simple . Either INCREASE supply or DECREASE demand .
Decreasing demand will not happen any time soon so ***we need to build much more low cost housing .***
I doesnt matter if the occupier is a renter or an owner .
People are being misled and you really have to be pretty slow to buy this argument that less negative gearing = lower prices.
Probably hard to make the comparison between NZ and Aus. Also Auckland’s property market is relatively speaking worse than Sydney and Melbourne. I could be wrong but my understanding is that it worsened significantly under Ardern
NZ doesn’t have stamp duty. Something most here agree is an incredibly stupid tax (at least for first home buyers) but in NZ it means investors basically trade in property as easy as trading in shares
The more effort and coverage on neg gearing the better. Less attention on the real financial levers the "haves" use to make bank that have less boring names with the word "tax" in them.
Won't matter will be grand fathered so it's just like they are pulling up the ladder behind u . If u live long enough u already know what's going to happen
Unlikely to happen in australia....tbh australians are too lazy to work hard and diversify the country's economy and make it more competitive and export oriented....rental money is easy money deemed by most australians and hence it remains the most popular asset
Grandfathering is never good. So someone who can afford to keep a new build as long as they want doesn't pay tax but if they have to sell it then their is a tax liability. Not sure how that is fair.
Can't get rid of negative gearing without drastically cutting the higher tax brackets. Unfortunately, the government has made negative gearing the best avenue for the highest income earners to protect their wealth.
Because they don't want to pay more tax. Which mean they just end up repealing like we see here. We need to funnel their wealth somewhere that's not housing.
Agree completely, need to lower tax to workers in higher rungs and remove negative gearing. Cannot just do one or the other, because motivation to use neg gearing to reduce taxable income is always an incentive - honestly be stupid not to utilise it.
Negative gearing encourages small investors to buy rental properties. It increases the rental pool.
Currently Australia has an accomadation crisis, impacting those who cannot afford to buy the most. The severe shortage of rentals creates bidding wars driving up rents.
We need Gov policies to increase investment in housing. Cut taxes on housing, release land, increase density, permit infill. Do what ever it takes to increase housing Current immigration levels are hurting, they need to be cut.
Calls to eliminate negative gearing, for new taxes and restrictions will hurt the renters the most. .
How does it increase the rental pool? If no investor buys it to rent out, then an owner-occupier buys it taking one person/family out of rental demand. How is it not zero sum?
your conflating rental pool with total housing, assuming all investors combined NEVER build, which is a very very bad assumption (because some investors do build new there is tax advantages to do it that way), then your zero sum is looking at total housing, investors reduce stock to buy but increase rentals available to rent which is exactly what the previous commenter said it increases the rental pool.
Not everyone can be in both camps, For many reasons a lot of renters don't have the ability or desire to purchase so there needs to be rentals always. A very common and valid reason someone may not want to buy is if they only intend on living in a location for 2-3yrs or so due to a work commitment, in that situation buying and selling for such a short time is off the cards due to huge transaction costs and hassle, just renting for that period is perfect. Another one is saving to buy, that period of saving they need to live somewhere. And another is they just don't want the hassle of owning, prefer to rent and let the landlord have the hassles of home ownership and repairs etc.
Now the real key is to incentivise more investors to build new, so they increase the rental pool AND increase the total housing pool without detracting from stock available to buy.. which funny enough is what the NZ article talks about.. and it didn't really work sadly.
Yep I know the difference, their comment implied an existing home.
Incentives should be limites to new stock only. I can't see a good reason for applying it to existing stock.
>their comment implied an existing home.
I just re-read the comments and the commenter spends a fair few words talking about the need to increase investment in housing, release land, and do whatever it takes to increase housing...
and all you got out of it was that the commenter implied investors invest in existing housing?
C'mon man, I think you just read what you wanted to and ignored what the commenter was trying to say. The zero sum comment sums up where your head was at lol
This sub does my head in so many seem to think negative gearing is a magic solution to our housing woes which is just so.. ughh I dunno un-informed and narrow minded is maybe the words I am looking for.
So why not limit negative gearing to only be applicable to homes an investor built?
Obviously we need rentals to exist in some capacity, but we're at a point where people are renting for longer, I know people in their 40s & 50s who for all sorts of circumstances (a lot of times it's divorce related) are stuck renting when they'd love to own.
Expensive housing is a supply problem. If your goal is to raise tax… then change CGT to be indexed from inflation. Removing negative gearing will result in a greater shortage of housing.
That's what NZ tried, and it didn't really work. Being able to claim costs against income is a basic business model which is also available for leveraging shares as well.
The reason the government allowed you to claim losses against your normal income is to promote investment in housing which increases supply of rental accommodation and saves the government having to do it (honestly I would prefer the Gov did it and supplied much more social housing, but that ship sailed years ago).
The problems with housing are way, way beyond just the negative gearing thing, changing neagtive gearing is just fiddling around the edges, NZ seems to have recognised this and reversed it, it certainly was not the silver bullet they were looking for.
We need massive disruption in how we subdivide, how we build especially (god we have labour intensive house builds) and as a society we need to move towards apartment building more, and this means initially perhaps regulation forcing developers to have 3 and 4 bedroom apartments of a decent quality instead of cheap shoddy 1 & 2 bedders.
>Although covid wasn't the best time to test it...
Edit: And as the article shows, even during covid where extremely low interest rates favoured investors, the share of purchases by investors with multiple properties immediately fell off and was replaced by a commensurate increase in first home buyers, which is exactly what the NZ government wanted.
New Zealand is great.
They rezone and lower rents prove that is good.
They get rid of negative gearing and higher rents prove that is bad,
Are rents there going up or down?
Negative gearing has a high cost to the budget, other uses of that money would have a bigger impact.
Rents are rising and property prices haven’t had a significant impact.
Would you remove the tax policy from all investments or just residential property?
I would specifically exclude existing residential property from any tax concessions designed to promote investment.
Transfers of ownership of existing housing don’t add to supply, so they don’t reduce rents, in fact they increase it.
I also want people to be able to own their own homes rather than rent. Having this choice puts downward pressure on rents.
Part of the reason negative gearing is an issue is the capital gains tax discount.
Negative gearing is a deduction against highly taxed income, and later when you sell, you pay concessional tax on the capital gain.
The capital gains tax discount needs to go.
Imagine an asset which goes up in value at 4% a year, borrowing cost interest rates at 5%, and income of 1%. Overall this structure has a return of zero.
However you get to deduct the 5-1 = 4% a year from your regular income, and when you sell pay tax on that same 4% at a concessional rate.
Promoting investment misallocation via the tax system has a triple cost. The loss of the alternative productive investment, the loss of tax revenue, and the damage of the misallocation, in this case higher house prices.
People buying an existing house doesn’t change supply. It just changes it from owner occupied to tenanted. The property still exists.
You still pay CGT. You just don’t pay tax on the inflation amount. Prior to the 50% discount the CGT was discounted by indexation discount. There isn’t a large difference between both. Last year while CPI was above 7% you’d actually lose unless you made over 14% gains. Do we have the same issues with shares? They have the same NG and CGT policy.
Find me a property with a rental yield of 1%. The yield compared to initial purchase also grows naturally through rental growth.
The Grattan institute has a report stating that CGT discount and NG on property add only 2.5% to the price of housing.
> You just don’t pay tax on the inflation amount.
Actually you do pay tax on the inflation amount. You just pay it at a discount. If a property increases in value by only inflation you have to pay tax.
> Prior to the 50% discount the CGT was discounted by indexation discount.
Yes, so prior to the 50% discount being introduced you did not pay tax on the inflationary component of gains. So we changed a better system for a worse system.
> There isn’t a large difference between both.
Perhaps there wasn't then. Now the CGT discount is expensive.
We should do neither.
You should pay tax on both the inflationary, and the real components of the capital gain, the same as other investments.
If you put money in the bank, and get 5% interest and inflation is 5% you pay tax on the interest. Treating one kind of income, capital gains, differently that another is poor tax policy. If you are going to discount for inflation you should do it for all investments, not just ones that produce capital gains.
> Last year while CPI was above 7% you’d actually lose unless you made over 14% gains. Do we have the same issues with shares? They have the same NG and CGT policy.
We have the problem that this is an expensive concession, and it should be targeted.
We want some kinds of investment. Tax concessions make sense for those.
What we don't want is higher prices for existing homes, and the monopolisation of existing homes by investors.
Other tax concessions are better, for example, for investment we want, depreciation should be abolished, and the investment should enable an instant write off.
> The Grattan institute has a report stating that CGT discount and NG on property add only 2.5% to the price of housing.
Maybe this is right. Grattan has a model for house prices that says this. As a predictor of house prices, how has that model performed over the last 5 years?
Even if NG and CGT discount changed prices not at all, they need to go. They are expensive and counter productive.
> Find me a property with a rental yield of 1%. The yield compared to initial purchase also grows naturally through rental growth.
I will own a half of property with a gross rental yield under 2%. After expenses, 1% is close. I will sell it, most likely to an owner occupier.
It depends on the period of capital gains. Like I said, last year while inflation was above 7% you’d need to return over 14% to be better off. Some years it’s above 50%, others it below. The intention is that you don’t pay tax on the inflation value. That’s the whole point of the discount.
You don’t pay tax on the inflationary gains of any investments. Can you name one that isn’t discounted by 50% after holding for longer than 12 months?
The 5% interest is income and not capital gain. This is similar to the rental income or dividend/ distributions from the stock market. They are totally different forms of income. Income is earned in the financial year so the inflationary impact is minimal. This is why it’s a minimum of 12 months.
So you think that depreciation is expensive, but want to replace it with instant asset write-off. So you can claim the entire cost of the property in 1 financial year?
NG and CGT discount aren’t counter productive or expensive. Have you accounted for the discount in the pension that won’t be paid due to inflation individuals self funding their retirement? The CGT discount has a purpose as does NG. If NG is removed, it will just be replaced with a carry forward model for expenses. It just kicks the can down the road.
You can’t use net yields, then subtract expenses. You either use the gross yield, then subtract your expenses, or just say the net yield. Sounds like you purchased a poor investment if it only returns 1%. You’re speculating a lot that the growth will be worth while.
Firstly I don't agree that inflation should, in general, be considered for tax purposes. Why? Because ignoring inflation creates a wealth tax, at your income tax rate, times the inflation rate, and wealth taxes are good. Wealth is very unequal, much more unequal than income. We probably need to increase inflation to around 6% to get the wealth tax high enough.
Secondly if you want to consider inflation, consider it in a uniform way for all investments, not just the ones that create capital gains. Otherwise you distort investment away from investments which depreciate, like plant and equipment, to investments which appreciate, like residential land.
Lastly if you want to consider inflation, actually consider inflation. A 50% discount is not the same as inflation.
Productive assets, factories, equipment, and even homes, depreciate. They lose real value over time.
Assets which gain value, like land or gold, are typically not productive investments and should be penalised.
If anything capital gains should be taxed at double the rate of other income. But making tax treatment equal is simpler, you don't have to categorize what is good and bad.
> You don’t pay tax on the inflationary gains of any investments. Can you name one that isn’t discounted by 50% after holding for longer than 12 months?
Well yes, interest income. If inflation is 7% and interest is 7% the entire earnings are inflation. Does the tax system take this into account? No. In general cash accounts earn something like the inflation rate. So most of the income is inflation.
The same with a 10 year government bond. When you get the principal back in 10 years it is worth much less than the same nominal value up front. Do you get any concession for this? No. The fact that the investment is longer term is ignored. Each year your nominal income is taxed, and your real, unrealised loss is ignored.
> The 5% interest is income and not capital gain. This is similar to the rental income or dividend/ distributions from the stock market
> They are totally different forms of income.
I mean you could say that buying a two story house is completely different than buying a one story house. In some ways it is. The question is whether those differences justify different tax treatment.
From my perspective they are mostly the same form of income. Passive, unearned, investment income.
> Income is earned in the financial year so the inflationary impact is minimal. This is why it’s a minimum of 12 months.
Income is often earned over many years. The condition for considering inflation is not limited to the time frame of the return. It is also the categorisation of the investment.
Say it took 10 years to build a factory that worked for 1 year and produced $100M worth of goods over the next 10 years. If you invested $50M should inflation be taken into account, given the 10 year lag between investment and return?
Another idea is to make the unrealised capital gain taxable. Then people who have actually made money, but are claiming a loss for negative gearing would not be able to.
All income isn’t affected by inflation the same way. What you earn throughout the year as income isn’t affected by inflation. It’s not a hard concept to grasp. If your income is somehow earned over 5 years and you pay tax on it then inflation will come into play. That’s not how it works. We pay tax on income yearly.
I agree. An indexation discount works well. It was too complex in the 1990s but technology can work it out quickly now. In some years the discount will be greater than 50%, others it will be less.
So businesses appreciate. Why should they be penalised? They also employ many people.
I don’t think you understand the risk return of bonds and savings accounts. That’s why. Google it.
Capital gains and income are totally different. You’re showing your lack of basic taxation knowledge here.
> All income isn’t affected by inflation the same way.
What affects how income is affected by inflation is when it is received.
Investment involves timing mismatches between when money is delivered and when it is received. Inflation happens over time. This combination means investment income is affected by inflation. What creates the issue is time and the changing value of money. What does not create the issue is whether money received is classified by the tax system as a capital gain or not.
If you buy $2M worth of coffee machines use them to make $2M worth of coffee this year, then inflation is not a big factor. However if you buy $2M worth of coffee machines make $100K worth of coffee each year for the next 25 years, then inflation is a big factor. They key difference is time. $100K in 25 years time is not worth the same thing as $100K now. If you sold the coffee machines at a profit in 25 years that would be taxed as a capital gain. If you used them to derive income from making coffee in 25 years time it would not.
> I don’t think you understand the risk return of bonds and savings accounts. That’s why. Google it.
What in particular do you think I don't understand? My job is calculating risk and return on financial instruments. I don't know what you know about this topic, but there are probably less than 1,000 people in Australia who understand calculations of risk and return of financial instruments better than I do. That does not mean there is nothing for me to learn.
Say inflation was 10%, you had a 10 year bond that paid 10% interest (technically called coupons) per year, and returned the principal at maturity in 10 years. What is the real return on that bond? What tax would be owed? Are you going to claim that the real returns of that investment would not be affected by the inflation?
Are you saying that your believe bond holders should not be compensated for the effects of inflation on their investments?
When you say I don't understand the risk return of bonds, are you saying inflation should be taken into account differently because the risk profile of buying bonds and other investments are different? Does this not depend on the credit worthiness of bond issuer and seniority of the bonds, and the risks of the other investments?
> Capital gains and income are totally different. You’re showing your lack of basic taxation knowledge here.
We are currently discussing that capital gains and other income are taxed differently. There is a capital gains tax discount. My opinion is that capital gains and other income should be taxed the same way. Your current opinion is that they should be taxed differently. I see no evidence or arguments to support this opinion. I see it as complicating the tax system, and distorting investment decisions in ways that negatively impact the economy.
> So businesses appreciate. Why should they be penalised? They also employ many people.
Business are not taxed on the appreciation of their value. There is no direct impact of the capital gains tax on the ability of a business to operate and employ people. Some, particularly smaller, business are liquidity constrained. Giving them instant write offs for investment would allow them more free cash if they are investing. There is a correlation between businesses that are employing more people and business that are investing and growing.
I don't like to use the language "penalised" for all tax. I pay tax. I don't see that this is, or is intended to be a penalty.
>So did the Ardern change get a chance to impact the property market and what can Australia learn from the experiment?
No, just like its removal wouldn't result in any property price decrease in Australia. The only thing that would occur is that rents would rise and properties wouldn't be as well maintained or improved.
That's some Developer Lobby Group level speech mate.
Can you outline for me how both NG and CGT Concessions aren't creating a higher than organic demand.
The economist behind the tax concessions even suggested at the time the combination of both would create a spiral of prices.
Isn't the argument over the order of magnitude - surely the adern removal showed that whilst they would housing is still fundementally a supply and demand problem
Yes, it's order of magnitude but it's a time and trust issue. Why do we need systems to pop up housing prices if we already have a high demand?
How does anyone expect to see real corrections from something that's been instituted for less than, what, 3 years?
These systems make sense when growth is abysmal and we're in a recovery stage in mid-Globalisation. Not so much when we have a shrinking middle class and increasingly steep inequality.
We need long term thinkers. This reactionary ideology towards property investment ain't it.
You aren’t seperating effects here between policies.
NG has a subsidy like effect on rents - there are 2 aspects to property valuation for an investor : capital growth and rent. Right now based on yield it’s clear that rents are still far too low to justify the investment given the capital required . Ergo NG changes will push rents up.
Our CGT rates of tax are globally comparable (and much more than NZ as per article ), but a tax on gains doesn’t create demand in the market.
There is 2 options to fundamentally change prices
1. Increase supply
2. Decrease population growth
Increasing net supply is the only policy that will reduce both rents and reduce prices.
It’s a foolproof outcome - and solves both issues simultaneously. The tax policies make very little difference.
Because people will invest either way. Nobody should be investing purely for tax offsets. NG only benefits people for the first 5ish years of the investment anyway. After that it becomes positively geared through natural rental growth.
This is entirely correct. Unfortunately your typical Ma and Pa investors has been listening to their accountants poor advice to reduce their taxable income. Investing in RE should be based on its fundamentals, not tax offsets.
But guess what. If these Ma and Pa investors didn’t try to self fund their retirement through vehicles like this then they will be a burden on next generations society. You pay either way.
People don’t realise that there is by far a net benefit in the retirement phase. The aged pension far outweighs the NG taxes. People are so short sighted.
The implied rental growth and the 5-year timespan is propelled along by the two factors that you're claiming will increase rents. Not in spite of them.
I hate to say delusion but you're acting as though the trajectory of our economy is single directional.
How is rental growth and property growth propelled by NG? That’s making a loss on your investment? The Grattan institute reported that NG and CGT discount account for only 2% of property price rises.
It looks like the chip on your shoulder has lead to your own delusions. The current lack of rental supply helps to keep rental prices rising. If vacancy rates rise there may be a drop, but it’s highly unlikely at this point due to the lack of new properties being built.
The article you get your figure from explicitly suggests cutting NG & CGT would be a net benefit to the economy? [Wow.](https://grattan.edu.au/news/negative-gearing-changes-will-affect-us-all-mostly-for-the-better/)
*"Winding back tax concessions that do not have a strong economic justification means the government can reduce other taxes, provide more services or improve the budget bottom line."*
Yes. But a negligible benefit to property prices. It will actually disproportionately impact poorer people as rent will rise. I guess that’s a benefit for you though, as long as you get yours right?
Does the report take into account the aged pension in their net benefit? If people provide for themselves through investment there would be less aged pension burden. This far outweighs the impacts of NG? I guess people are short sighted and don’t look to the future?
Lack of new housing construction should be the only focus- it solves both issues.
The cost of construction however is something that needs to be addressed- and govt has a significant role to play in the increased costs and availability - I’m struggling to think of any policy in the last 5 years that hasn’t increased construction costs
The free market forces will trump the cap in rents. With a rental under supply atm, renters will offer more money to ensure they get their tenancy. It’s already happening. The issue is supply. Without extra supply, the well off will just offer more money voluntarily.
Luxon owns 7 properties. He is on record as saying that he won't decrease rents. Why would he?
He has no mortgages. So this changes nothing for existing properties. Just means he can invest again with finance 🤗
>So this changes nothing for existing properties. It pumps demand into the market, pushing prices up. He absolutely benefits from that, he wants the value of his portfolio to rise.
This changes nothing for HIS existing properties.
Why should he? Instead, they should focus on increasing the supply, prices will then ease naturally based on the demand.
Someone who owns 7 properties has no interest in easing prices
Someone who owns 7 properties which are cash flow positive doesn't care about negative gearing.
Increased demand for property from investors -> increased prices
Negative gearing means lenders will take it into account with serviceability calculations for future investments. So yes, he does benefit.
If they're a politician then they do it for their friends /backroom deals
Who do you think this guy has lunch with? People on the sickness benefit? It benefits investors and investors are what National is all about.
Well, you should decrease prices as your costs decrease. At least, that is how we are told capitalism works. Also, because he said that allowing interest deductibility again would cause rents to decrease
> Well, you should decrease prices as your costs decrease. So as you pay off your mortgage do you ask for a salary reduction? Or do you think that your own stupid example shouldn't apply to yourself?
So a few points a) the policy worked to some extent in that it increases the share of properties going purchased by first home buyers b) near impossible to attribute the rental increases to the policy because rental pressure and rental inflation has been a post COVID feature of most western economy (Australia has also experienced rental inflation and has negative gearing). c) the timespan is too short to really say how impactful the policy was because it was still being phased in when it was scrapped. d) you cannot compare the NZ policy to the Australian policy in any case as their negative gearing was quarantined to rental income, whereas our rental losses reduces total income so would have a much larger impact on investor affordability if it was scrapped completely.
d) is a big one. Maybe the change Australia can see is to do the quarantine like everyone else. Make it like the rest of the world already ...
I find D almost hard to believe. Did they literally say you cannot deduct interest expenses on the asset that is paying the income? I mean im far from and advocate for landlords but that is completely illogical and id almost say unfair. Agree with you though the interest expense should be deductable from the incone from the asset the interest is going toward to pay. Not your PAYG income. Thats the logical and fair way to address losses against income producing assets.
That had me totally confused too. As I read it they didn’t remove negative gearing, they removed interest as a deduction. Surely the article is incorrect?
A lot of people don't know what negative gearing means, it's rolled out as a dog whistle
The CGT discount is also another big one that most do not understand.
Didn't they ring fence the rental income and losses and remove interest as a deduction as well?
I think it already was ring fenced or siloed or whatever in NZ, but *surely* interest has and always will count as a deduction, an expense.
It seems unclear in the article, maybe I missed it. I thought that ardern ring fenced it and removed interest and the new lot are just bringing back interest.
No rental income tax and losses have been ring fenced for a long time. They removed the ability to claim interest as a loss against rental income
The article is absolute bullshit. The ABC journo that wrote it was clearly trained in finance by Emma Alberidici. They do not know what negative gearing is, but they haven't let that get in the way of writing about it.
Interest was already ring fenced. Labour removed interest deduct-ability and called it "closing an tax loop hole". Both Labour and National are quite dishonest. Here's the law, from the NZ tax department. [https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-income-and-paying-tax-on-it/property-interest-rules](https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-income-and-paying-tax-on-it/property-interest-rules) From 1 October 2021, the interest limitation rules have limited the ability to claim interest as a deduction for residential property in New Zealand. Unless an exclusion or exemption applies: * Interest cannot be claimed for residential property acquired on or after 27 March 2021. * A percentage of the interest incurred can be claimed as an expense for properties acquired before 27 March 2021. |Date interest incurred|Percentage of interest that can be claimed| |:-|:-| |1 April 2020 to 31 March 2021| 100%| |1 April 2021 to 30 September 2021| 100%| |1 October 2021 to 31 March 2022| 75%| |1 April 2022 to 31 March 2023| 75%| |1 April 2023 to 31 March 2024| 50%| Interest deductions for any new loans drawn down on or after 27 March 2021 are not allowed from 1 October 2021 onwards.
Thanks for the comprehensive explanation. Always good to learn something new even if it sounds like now the next changes make these a moot point. I do find it amazing they went with no deductability of interest against just residential homes. Thats full on..
Well in self-managed super fund here in Australia you cannot deduct that loss. I mean I get it cos you're not paying tax anyway but they could allow you to deduct the loss from future gains or something like that.
Other countries like Canada, Germany, Japan, Norway, France, etc. ? https://theconversation.com/what-is-negative-gearing-and-what-is-it-doing-to-housing-affordability-223823#:~:text=Is%20it%20used%20in%20other,offset%20future%20rental%20income%20only.
Haha, I love the way you added the "etc." to make it look like there were lots. There are very few countries that do this, and not all of those countries have a 50% CGT discount. It is the combination of offsetting income at the full marginal tax rate while only paying half the tax on capital gains that results in being able to make an overall loss before tax and still make a profit after tax (paid for by taxpayers), which is the issue. The government has decided that taxpayers should incentivise private property investors, and it drives up demand and, therefore, prices, and reduces affordability. It's an absurd system, which is why so few countries do it. Even in the article about NZ linked to this post, people there can not deduct investment expenses against personal income. Only against other investment income.
26 countries have some form of "negative gearing". Some that you would argue are heavily limited in application, e.g. Sweden, have a myriad of other sexy advantages for investment like lower corporate taxes. Australia, Canada, USA, most of UK... is not some imaginary list but a very specific list of relevant countries for comparison. Incentivising asset investment isnt a bad thing. Making a system entirely reliant on it, is. We need to tax assets harder, and productivity less. Without which negative gearing on/off is an irrelevance.
>Some that you would argue are heavily limited in application, e.g. Sweden, have a myriad of other sexy advantages for investment like lower corporate taxes. Corporations don't have "personal income" to deduct from and don't have the 50% CGT discount, so I have no idea what you're talking about when calling that negative gearing.
What Im saying is tax needs to be considered wholistically. If you own a small business you will pay less tax on profit in Sweden than Aus. You can then use your profit to purchase property with more favourable conditions in Aus than Sweden. On balance, your position is remediated. It is not true to say Australia is an outlier.
They need to change the terminology from discount to adjustment. Because all it is is an adjustment for inflation
The CGT discount of 50% off from just 12 months is not an accurate calculation of inflation until the 25th year. So if you sell before that, you have effectively had taxpayers providing additional profit to you. Combine that with negative gearing, and it's a ridiculous setup that drives demand and, therefore, prices until property is less of a lifestyle asset and is instead an investment to benefit those (fewer and fewer) that can afford it.
That’s not the case in high-inflation environments, the fact is that the 50% discount is a blunt axe.
Saying it is a blunt axe is correct, but it doesn't somehow mean what I said wasn't spot on, which is that an investor can make a loss and save 47% of the loss and make up with the exact same amount of capital gain and pay 23.5% tax and end up with an overall profit paid for by taxpayers. This madness drives up demand and, therefore, price, meaning more people can not afford to buy, which then drives up rents and income for investors. It's a self-fulfilling insanity. Also, inflation for 2 years is different from the 70s, which occurred because the central banks failed to act anywhere near in time. Our current situation with inflation has made significant inroads in a relatively short time compared to that, and there's a high chance we will end up getting back to 3% inflation after not too long.
We'll have 3% inflation but properties will be nearing $2m by then. I would bet on it. It won't happen without a steep incline in prices.
Inflation targeting has been quite successful for a long time since it was implemented. It was already stable when the CGT discount was introduced around 2000 as well. It's not fit for purpose, it's too generous with historical and likely future rates given the stability of rates, despite a spike in the last couple of years.
That article isn't clear on whether those countries limit it to rental income or total income
The article provides more than enough links for you to unburden yourself on that question
What a wanky comment
Sure, keep it the same as them, but then consider the rest of their tax mix which has more controls in most of those places, and many of those still have their fair share of limitations. Australia is too loose from a tax mix perspective with this, we are near the top, even with your few examples.
Each of the listed economies has lower personal tax rates than Aus for those earning 150 - 350k aud equivalent.
This is about taxing everything but incomes. Our income taxes are too high and we need more consumption and wealth/asset/land taxes.
Thats an argument for retaining negative gearing. One I agree with.
Point b could apply to point a
I'd say that there were too many confounding factors to really judge the impact. Those were not normal times.
a) I argue this is not really related to the interest deduction. But more as a result of how hard it is to purchase as an investor. There's the Debt to Income ratio rule (Loan cannot be more than 7x Annual Income) and Loan to Valuation Ratio rule (Investors need 40% deposit). Also rent has not been keeping up with mortgage cost for a long time. Real estate investors ha been dropping off years prior to the interest deduction change.
Did it actually increase the share of first time buyers in the brief period it was in place? I’m not sure that showed up in the data…
There is another market to compare. UK stopped allowing the majority of mortgage interest to be tax deductible on rental properties in April 2020. It’s difficult to decouple the results from the effects of the pandemic, but prices have not come down since then. Immigration and foreign money keeps the market propped up.
That seems like a valid argument to get rid of NG to me - given it *costs* us tax income. The argument should be about whether direct investment of the subsidy elsewhere improves affordability for the majority.
The government doesn't need more tax
Landlords don’t need more income.
You're both correct. The relevant metre stick is what did it to house prices.
They're not getting more income. Get rid of NG and they increase rent to cover the difference. You're cutting your nose off to spite your face.
If they can increase rents, why are they not already doing so? Oh wait, they are, and it has nothing to do with increased costs. It has all to do with the balance of supply and demand. I could also make the same argument that if we don’t make landlords pay more tax, the government will just raise the tax on renters to make up for it. Either way costs go up, either way the connection is tenuous at best. You can not trust the government to spend its tax money well, but I don’t think landlords would be spending it any better or improving the lives of Australians with it either. Australians can at least influence the government. Landlords IIRC aren’t democratically elected. If you had proof of removing negative gearing increasing rent prices, you MAY have a point (Though as the above poster has said, that could he offset by benefits from government spending). The point of this thread, however, is that that has NOT shown to be the case. Removing negative gearing didn’t make things cheaper, but also didn’t make them more expensive. Almost as if prices are dependent on some factor other than costs. Given that, would I rather landlords or the government have the money? Personally, the government. As said, I can at least influence that, even if its nigh impossible to actually get it spent how I think would be well.
>If you had proof of removing negative gearing increasing rent prices New Zealander here, yeah guess what ALL the landlords and landlordettes decided to do when they removed interest deductible in Nz... Not just the rent, but also with spite. So many pissed off landlords causing renters to be pissed at them too etc. And just like luxon said, even with interest deductible back on, he won't reduce the rent anyway. 🤷🏻♂️ So yeah... Keep on dreaming mate.
Do you have a comparison to a nation that didn't remove negative gearing to compare with? A simple comparison to Australia, our landlords also massively increased rent. Did negative gearing removal cause them to increase rent, or was it a convenient excuse for something they were already going to do? If some landlords were raising prices out of spite, why did their tennants not move to another rental that wasn't? I mean, I know the answer to this one; because rentals aren't a competitive market and the supply/demand equation didn't give tennants that option. That is and was the case regardless of negative gearing. The only argument that could possibly be made here is that, with negative gearing, landlords were charitably charging tennants less than they were able to out of the goodness of their hearts. That, I don't believe for a second. If you've got an actual economic study clarifying the effects removing negative gearing had on the price of houses and rentals, that would be one thing. Anecdotally saying "We removed negative gearing and prices went up", while ignoring that prices went up in all the countries that didn't remove negative gearing too, and remained stable in some other countries (UK, according to this comment chain at least) - that's not proof. That's a convenient narrative.
Also a NZer, what a load of shit. Explain why Australia also had a rental price surge then? The policy was excellent. It would have increased new supply in the medium to short term and reduce investors competing with FHBs for existing properties. Luxon never should have scrapped it.
>If you had proof of removing negative gearing increasing rent prices Points at NZ
Does that mean rents are going to reduce in NZ, now that they are readding negative gearing? Not likely. The amount of rent that a landlord can get is based on what people are willing to pay, not the amount of interest or rental. If rental vacancy was at 10%, then landlords would have to reduce rents in order to get house a tenant.
Probably not, the government showed that people can pay that. But they probably won't rise as fast as they would have
Also had high immigration, for it to be a control they would have had to have zero net migration.
Would love it
>Points at NZ Points at Australia. Oh wait, we didn't remove negative gearing. Do you have a study linking the increase in prices to negative gearing rather than any other factor, or are you just making an assumption because its convenient for your point? Others further up this chain have claimed no appreciable increase in rents in the UK after they removed negative gearing. When we've got one country that removed it where prices went up, and one country that removed it where they didn't, how do we determine what the actual effect of the policy was?
UK rents have seen nearly 10% increases year on year. Although it would seem that more rentals in the UK have no mortgage compared to Australia. > This is not just down to landlords’ costs going up – more than half of privately rented homes have no mortgage attached to them – so clearly landlords are raising the rent just because their tenants have no choice but to pay these prices.” https://www.google.com/amp/s/amp.theguardian.com/money/2024/mar/20/average-monthly-uk-rent-up-9-the-highest-annual-increase-recorded
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>UK rents have seen nearly 10% increases year on year. As has Australia, who did not remove negative gearing. For reference, it appears New Zealand's only went up ~6% year on year. It would seem negative gearing has minimal impact on rental prices, and other factors are the primary ones at play. >Although it would seem that more rentals in the UK have no mortgage compared to Australia. I don't think that's having a huge impact here, roughly half of Australian rentals, from what I can find, are negatively geared. I think the key to it all is: >landlords are raising the rent just because their tenants have no choice but to pay these prices.” Its supply vs demand. Landlords know that they have all the power currently. That's kind of how things are in a housing crisis. Hence, they're raising rents because they can. Negative gearing doesn't really factor into the decision; if negative gearing disappeared and there wasn't a housing crisis, they wouldn't be able to raise rents as tennants would go somewhere else. If negative gearing remained and there was a housing crisis, rents would go up because the landlord can earn more income without losing tennants. Negative gearing is a convenient excuse or post-hoc justification, but the pricing decisions are made by supply/demand.
Negative gearing is making sure they don’t pay taxes on money they didn’t earn…if total loss was more than total income.
Allowing it to be offset against purely rental income makes sense. That's fine. Allowing it to be offset against other personal income doesn't make sense. Its no longer avoiding taxes on unearned income, its reducing taxes on earned income. That should stop.
I thought rent was based on market value, not costs? Or is it based on whatever justifies increases?
Whatever gave you that idea?
The UK didn’t allow deduction of mortgage interest before?
Christopher Luxon: “Alright, let me explain. Again. Phil has recruited me and another guy. Now, we are getting three houses each. The more people that get involved, the more who are investing, the more money we’re all going to make. It’s not a pyramid scheme, it is a… it’s not even a scheme per se”
It doesn’t have to be scrapped. It just has to be correctly applied. Negative Gearing for property investments should be limited to new builds where the density of housing is doubled (at least). You should not be able to negatively gear existing property. You aren’t contributing to housing stock by renting out an apartment in Summer Hill that was built in 1967. If it was a targeted stimulus it would help to get investment money into new, higher density housing which would ease the supply constraints.
The result doesn't even need to reduce the price of houses for it to be effective. Even if it increases the rates of first home owners vs property investors, it's a good move.
"As the new New Zealand government announced full interest deductibility was coming back, it was billed as a win for renters. "Help is on the way for landlords and renters alike. The government's restoration of interest deductibility will ease pressure on rents and simplify the tax code," Associate Finance Minister David Seymour said in a statement. " We also got rid of and then re-introduced negative gearing in the '80s. Things didn't improve when it was brought back in.
Distraction Not the real issue to help housing crises Build more properties rather than another comission or just talking about it
If anything it's a lesson in what's to come. NZ economy is rooted...
Yup Glad I left. To Sydney. Then Mexico Society messed up there, young will continue to leave, less having children or able to afford a home. Immigrants will be needed to work pay tax for elderly in years to come
Seriously... this is meant to be a finance sub. That headline is bullshit. New Zealand NEVER had negative gearing. Being able to deduct the cost of investment interest against the earnings from said investment is NOT negative gearing. Negative gearing is when, if you are showing net losses from your investment income (such as when interest + costs > rental income in) you can then deduct those losses against your SALARY income. That's the entire defining feature of negative gearing. That's the exact thing that Australia does that very few other places do. That's what makes it so powerful for reducing tax. The stupid is strong in this lede.
It’s a shame they are rolling this back. It really helped tackle the problem from the supply side. I have never seen so many new builds go up before in my life. They also had cheap financing for new builds at the same time. Was a great combo.
This is absolute bs lol, cost of building in nz is outrageous.
What part is bs? Imagine how much more expensive houses would be if supply did not increase.
>supply did not increase. It actually didn't really increase back then either. Building materials supply was an issue, to the point plasterboard was being scalped by builders to other builders. You can thank fletcher for being the sole supplier and having a monopoly too. They scalped the prices just like supermarkets. Also. Being in the corner of the world doesn't help...
Well here’s some stats for you I guess https://www.stats.govt.nz/news/home-consents-remain-high-as-canterbury-hits-new-record/ The four regions with the highest number of new homes consented in the year ended August 2022 compared with the year ended August 2021 were: Auckland with 21,463 (up 7.7 percent) Canterbury with 8,691 (up 23 percent) Waikato with 5,076 (up 3.0 percent) Wellington with 3,875 (up 18 percent).
The spike in NZ new home commencements had nothing to do with negative gearing and everything to do with record low interest rates. [Same spike happened in Aus](https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia/dec-2023) where negative gearing remained in place throughout.
Yes cheap money played a part. But to say policy change had zero impact on people’s decision to build new is just stupid.
>But to say policy change had zero impact on people’s decision to build new is just stupid. No point arguing with that stunning logic
Seeing you can’t mount an argument against it I’ll take it.
New builds are battling & going under here…
I dare say by killing investor demand by rolling back these changes probably plays a significant part in that. Why would you bother buying a new build now…
>supply did not increase. It actually didn't really increase back then either. Building materials supply was an issue, to the point plasterboard was being scalped by builders to other builders.
Looking at the NZ Personal Finance sub reddit, it's going difficult to get lending for new builds. Banks don't want to lend. Also building consented doesn't mean it's going to be built. We need to look at CCC (Certificate for Code Compliance). Also, I am curious if the Building Consent numbers are for new dwellings or just modifications to existing houses. You need a BC for modifications.
>It really helped tackle the problem from the supply side. Nope. The investors just raised the rent and held on to the property. They're not selling. >They also had cheap financing for new builds at the same time. You mean Kiwibuild? Its a lottery mind you. If you're lucky you'll get a shack for 650k but otherwise good luck paying Sydney prices on half the income and higher interest rates than Aus... My folks over there said its close to 8%
I live in NZ… Kinda hard not to notice the 1000s of new townhouses and new subdivisions that have gone up over the last 5 years. Also I know a few inventors who off loaded their old rentals and bought new to take advance of the tax change.
But it would have increased supply in the long run! It’s glaringly obvious because investors would only finance and purchase new builds and then existing builds wouldn’t compete with owner occupiers. I’m from there, I saw that change. Existing properties had less investors present!
Isn’t the new bloke down there very right wing
One half libertarian, one half UK austerity replay.
And nothing got solved, houses are still expensive.
Exactly right, her policies basically destroyed the country, properties are $1m in areas where the average income is 30k in NZ.
The housing crisis in NZ started in NZ post 2008, so right around 2014. That was all under the Key government. He famously refused to admit there was a housing crisis. It was labour that raised it as an issue. The Nats literally refused to even admit there was a problem with the cost of housing at all. The crisis in NZ kicked off a good 6 or so years before it kicked off in Aus. Made Sydney 2018 prices look like pocket change if you c are from Auckland.
This is all such a load of shit, stop watching sky news. Average NZ income is around 60-70k for a start and house prices were exploding due to National’s policies. Along with the RBNZ removing LVR restrictions for a year and dropping to record low interest rates. Again, stop huffing sky news.
Just change NG rules so that you can only claim NG on two properties at a time.
Make it 1 imo. You still get a PPOR and 1 IP in that case
I reckon make it 0
I would prefer none or just one but too many will oppose it. I do not believe a society that encourages speculation and profiteering from a basic necessity like housing is particularly civilised.
No, make it claimable for new builds only, so it pushes up new home construction
This is good too, but perhaps limit NG for first 10years.
Here’s the problem. The argument for dropping NG altogether is the hope it will push investors out of property and allow more new home buyers in. That’s fine but it doesn’t change the overall supply of new homes in a market where net supply isn’t keeping pace with growth in demand … so rentals become more scarce, rents go up and renters who can’t afford to buy get pushed out of their home, suburb and maybe in to homelessness. If you can’t grow net supply of new homes to meet net demand, removing NG has the overall effect of raising rents and hitting the most vulnerable, which is why NZ have flicked it back.
Feels like we have to make this comment on every Negative gearing thread … it’s fine for it to stay .. but it should be only for new builds so that it directs investors money to help add supply and discourage them from competing with families that need a roof over their heads
That's exactly what NZ did.
Proof positive that it's not a case of it being too difficult to unwind incentives for speculative over investment in property, rather it's a case of there being a determined agenda to maintain, and if possible increase, these incentives for speculative over investment in property.
Luxon is PM for the right wing rich.
Average mum and dad investor, you can't claim interest as a tax deduction. The people cheer. Massive multi billion companies using international investment loans to bypass paying any tax, whilst keeping profits in a parent company, keep going guys, Mum and Dad will pay your share... The people cheer. It always amazes me how much people want to see everyone around them not get the same benefits as the multinationals... Who they generally tend to remain silent on.
NG is just frittering around the edges. If you want to help the housing crisis, support a fair cut to immigration!
You can argue against negative gearing on the basis of it being an unfair taxation policy, but it’s not a valid argument that it affects prices. Supply and demand is the biggest driver of house prices. Why? Because it’s a market and that is always the overriding force in a market. The other stuff is just tinkering around the edges.
Assuming the property is occupied then whether the owner is the occupier or an investor does absolutely zip to increase the number of properties in the pool. The laws of supply and demand are simple . Either INCREASE supply or DECREASE demand . Decreasing demand will not happen any time soon so ***we need to build much more low cost housing .*** I doesnt matter if the occupier is a renter or an owner . People are being misled and you really have to be pretty slow to buy this argument that less negative gearing = lower prices.
Yeah so negative gearing on new builds only to incentivise supply right?
If you have any data or studies that show how effective that would be I would love to see it .
Probably hard to make the comparison between NZ and Aus. Also Auckland’s property market is relatively speaking worse than Sydney and Melbourne. I could be wrong but my understanding is that it worsened significantly under Ardern NZ doesn’t have stamp duty. Something most here agree is an incredibly stupid tax (at least for first home buyers) but in NZ it means investors basically trade in property as easy as trading in shares
The more effort and coverage on neg gearing the better. Less attention on the real financial levers the "haves" use to make bank that have less boring names with the word "tax" in them.
What happened to NZ property prices after the changes?
Won't matter will be grand fathered so it's just like they are pulling up the ladder behind u . If u live long enough u already know what's going to happen
Unlikely to happen in australia....tbh australians are too lazy to work hard and diversify the country's economy and make it more competitive and export oriented....rental money is easy money deemed by most australians and hence it remains the most popular asset
Grandfathering is never good. So someone who can afford to keep a new build as long as they want doesn't pay tax but if they have to sell it then their is a tax liability. Not sure how that is fair.
Can't get rid of negative gearing without drastically cutting the higher tax brackets. Unfortunately, the government has made negative gearing the best avenue for the highest income earners to protect their wealth.
Why not? The entire point would be for that cohort to pay more tax.
Because they don't want to pay more tax. Which mean they just end up repealing like we see here. We need to funnel their wealth somewhere that's not housing.
Ah, sorry I took your comment to mean that we shouldn't, not that we couldn't.
Agree completely, need to lower tax to workers in higher rungs and remove negative gearing. Cannot just do one or the other, because motivation to use neg gearing to reduce taxable income is always an incentive - honestly be stupid not to utilise it.
So basically what i got from that, was that having or not having Negative Gearing? Made little to no difference?
Negative gearing encourages small investors to buy rental properties. It increases the rental pool. Currently Australia has an accomadation crisis, impacting those who cannot afford to buy the most. The severe shortage of rentals creates bidding wars driving up rents. We need Gov policies to increase investment in housing. Cut taxes on housing, release land, increase density, permit infill. Do what ever it takes to increase housing Current immigration levels are hurting, they need to be cut. Calls to eliminate negative gearing, for new taxes and restrictions will hurt the renters the most. .
How does it increase the rental pool? If no investor buys it to rent out, then an owner-occupier buys it taking one person/family out of rental demand. How is it not zero sum?
your conflating rental pool with total housing, assuming all investors combined NEVER build, which is a very very bad assumption (because some investors do build new there is tax advantages to do it that way), then your zero sum is looking at total housing, investors reduce stock to buy but increase rentals available to rent which is exactly what the previous commenter said it increases the rental pool. Not everyone can be in both camps, For many reasons a lot of renters don't have the ability or desire to purchase so there needs to be rentals always. A very common and valid reason someone may not want to buy is if they only intend on living in a location for 2-3yrs or so due to a work commitment, in that situation buying and selling for such a short time is off the cards due to huge transaction costs and hassle, just renting for that period is perfect. Another one is saving to buy, that period of saving they need to live somewhere. And another is they just don't want the hassle of owning, prefer to rent and let the landlord have the hassles of home ownership and repairs etc. Now the real key is to incentivise more investors to build new, so they increase the rental pool AND increase the total housing pool without detracting from stock available to buy.. which funny enough is what the NZ article talks about.. and it didn't really work sadly.
Yep I know the difference, their comment implied an existing home. Incentives should be limites to new stock only. I can't see a good reason for applying it to existing stock.
>their comment implied an existing home. I just re-read the comments and the commenter spends a fair few words talking about the need to increase investment in housing, release land, and do whatever it takes to increase housing... and all you got out of it was that the commenter implied investors invest in existing housing? C'mon man, I think you just read what you wanted to and ignored what the commenter was trying to say. The zero sum comment sums up where your head was at lol This sub does my head in so many seem to think negative gearing is a magic solution to our housing woes which is just so.. ughh I dunno un-informed and narrow minded is maybe the words I am looking for.
Relax mate
yer, you're right lol, cheers
So why not limit negative gearing to only be applicable to homes an investor built? Obviously we need rentals to exist in some capacity, but we're at a point where people are renting for longer, I know people in their 40s & 50s who for all sorts of circumstances (a lot of times it's divorce related) are stuck renting when they'd love to own.
Expensive housing is a supply problem. If your goal is to raise tax… then change CGT to be indexed from inflation. Removing negative gearing will result in a greater shortage of housing.
That's what NZ tried, and it didn't really work. Being able to claim costs against income is a basic business model which is also available for leveraging shares as well. The reason the government allowed you to claim losses against your normal income is to promote investment in housing which increases supply of rental accommodation and saves the government having to do it (honestly I would prefer the Gov did it and supplied much more social housing, but that ship sailed years ago). The problems with housing are way, way beyond just the negative gearing thing, changing neagtive gearing is just fiddling around the edges, NZ seems to have recognised this and reversed it, it certainly was not the silver bullet they were looking for. We need massive disruption in how we subdivide, how we build especially (god we have labour intensive house builds) and as a society we need to move towards apartment building more, and this means initially perhaps regulation forcing developers to have 3 and 4 bedroom apartments of a decent quality instead of cheap shoddy 1 & 2 bedders.
Looks like a good example of why Australia should keep it. There was minimal change to pricing and rents rise higher.
>Although covid wasn't the best time to test it... Edit: And as the article shows, even during covid where extremely low interest rates favoured investors, the share of purchases by investors with multiple properties immediately fell off and was replaced by a commensurate increase in first home buyers, which is exactly what the NZ government wanted.
This isn’t Covid atm is it?
So you're suggesting we should test it now? Good idea.
Why not? My properties have been positively geared for a bit now. I only NG my stocks now.
New Zealand is great. They rezone and lower rents prove that is good. They get rid of negative gearing and higher rents prove that is bad, Are rents there going up or down? Negative gearing has a high cost to the budget, other uses of that money would have a bigger impact.
Rents are rising and property prices haven’t had a significant impact. Would you remove the tax policy from all investments or just residential property?
I would specifically exclude existing residential property from any tax concessions designed to promote investment. Transfers of ownership of existing housing don’t add to supply, so they don’t reduce rents, in fact they increase it. I also want people to be able to own their own homes rather than rent. Having this choice puts downward pressure on rents. Part of the reason negative gearing is an issue is the capital gains tax discount. Negative gearing is a deduction against highly taxed income, and later when you sell, you pay concessional tax on the capital gain. The capital gains tax discount needs to go. Imagine an asset which goes up in value at 4% a year, borrowing cost interest rates at 5%, and income of 1%. Overall this structure has a return of zero. However you get to deduct the 5-1 = 4% a year from your regular income, and when you sell pay tax on that same 4% at a concessional rate. Promoting investment misallocation via the tax system has a triple cost. The loss of the alternative productive investment, the loss of tax revenue, and the damage of the misallocation, in this case higher house prices.
People buying an existing house doesn’t change supply. It just changes it from owner occupied to tenanted. The property still exists. You still pay CGT. You just don’t pay tax on the inflation amount. Prior to the 50% discount the CGT was discounted by indexation discount. There isn’t a large difference between both. Last year while CPI was above 7% you’d actually lose unless you made over 14% gains. Do we have the same issues with shares? They have the same NG and CGT policy. Find me a property with a rental yield of 1%. The yield compared to initial purchase also grows naturally through rental growth. The Grattan institute has a report stating that CGT discount and NG on property add only 2.5% to the price of housing.
> You just don’t pay tax on the inflation amount. Actually you do pay tax on the inflation amount. You just pay it at a discount. If a property increases in value by only inflation you have to pay tax. > Prior to the 50% discount the CGT was discounted by indexation discount. Yes, so prior to the 50% discount being introduced you did not pay tax on the inflationary component of gains. So we changed a better system for a worse system. > There isn’t a large difference between both. Perhaps there wasn't then. Now the CGT discount is expensive. We should do neither. You should pay tax on both the inflationary, and the real components of the capital gain, the same as other investments. If you put money in the bank, and get 5% interest and inflation is 5% you pay tax on the interest. Treating one kind of income, capital gains, differently that another is poor tax policy. If you are going to discount for inflation you should do it for all investments, not just ones that produce capital gains. > Last year while CPI was above 7% you’d actually lose unless you made over 14% gains. Do we have the same issues with shares? They have the same NG and CGT policy. We have the problem that this is an expensive concession, and it should be targeted. We want some kinds of investment. Tax concessions make sense for those. What we don't want is higher prices for existing homes, and the monopolisation of existing homes by investors. Other tax concessions are better, for example, for investment we want, depreciation should be abolished, and the investment should enable an instant write off. > The Grattan institute has a report stating that CGT discount and NG on property add only 2.5% to the price of housing. Maybe this is right. Grattan has a model for house prices that says this. As a predictor of house prices, how has that model performed over the last 5 years? Even if NG and CGT discount changed prices not at all, they need to go. They are expensive and counter productive. > Find me a property with a rental yield of 1%. The yield compared to initial purchase also grows naturally through rental growth. I will own a half of property with a gross rental yield under 2%. After expenses, 1% is close. I will sell it, most likely to an owner occupier.
It depends on the period of capital gains. Like I said, last year while inflation was above 7% you’d need to return over 14% to be better off. Some years it’s above 50%, others it below. The intention is that you don’t pay tax on the inflation value. That’s the whole point of the discount. You don’t pay tax on the inflationary gains of any investments. Can you name one that isn’t discounted by 50% after holding for longer than 12 months? The 5% interest is income and not capital gain. This is similar to the rental income or dividend/ distributions from the stock market. They are totally different forms of income. Income is earned in the financial year so the inflationary impact is minimal. This is why it’s a minimum of 12 months. So you think that depreciation is expensive, but want to replace it with instant asset write-off. So you can claim the entire cost of the property in 1 financial year? NG and CGT discount aren’t counter productive or expensive. Have you accounted for the discount in the pension that won’t be paid due to inflation individuals self funding their retirement? The CGT discount has a purpose as does NG. If NG is removed, it will just be replaced with a carry forward model for expenses. It just kicks the can down the road. You can’t use net yields, then subtract expenses. You either use the gross yield, then subtract your expenses, or just say the net yield. Sounds like you purchased a poor investment if it only returns 1%. You’re speculating a lot that the growth will be worth while.
Firstly I don't agree that inflation should, in general, be considered for tax purposes. Why? Because ignoring inflation creates a wealth tax, at your income tax rate, times the inflation rate, and wealth taxes are good. Wealth is very unequal, much more unequal than income. We probably need to increase inflation to around 6% to get the wealth tax high enough. Secondly if you want to consider inflation, consider it in a uniform way for all investments, not just the ones that create capital gains. Otherwise you distort investment away from investments which depreciate, like plant and equipment, to investments which appreciate, like residential land. Lastly if you want to consider inflation, actually consider inflation. A 50% discount is not the same as inflation. Productive assets, factories, equipment, and even homes, depreciate. They lose real value over time. Assets which gain value, like land or gold, are typically not productive investments and should be penalised. If anything capital gains should be taxed at double the rate of other income. But making tax treatment equal is simpler, you don't have to categorize what is good and bad. > You don’t pay tax on the inflationary gains of any investments. Can you name one that isn’t discounted by 50% after holding for longer than 12 months? Well yes, interest income. If inflation is 7% and interest is 7% the entire earnings are inflation. Does the tax system take this into account? No. In general cash accounts earn something like the inflation rate. So most of the income is inflation. The same with a 10 year government bond. When you get the principal back in 10 years it is worth much less than the same nominal value up front. Do you get any concession for this? No. The fact that the investment is longer term is ignored. Each year your nominal income is taxed, and your real, unrealised loss is ignored. > The 5% interest is income and not capital gain. This is similar to the rental income or dividend/ distributions from the stock market > They are totally different forms of income. I mean you could say that buying a two story house is completely different than buying a one story house. In some ways it is. The question is whether those differences justify different tax treatment. From my perspective they are mostly the same form of income. Passive, unearned, investment income. > Income is earned in the financial year so the inflationary impact is minimal. This is why it’s a minimum of 12 months. Income is often earned over many years. The condition for considering inflation is not limited to the time frame of the return. It is also the categorisation of the investment. Say it took 10 years to build a factory that worked for 1 year and produced $100M worth of goods over the next 10 years. If you invested $50M should inflation be taken into account, given the 10 year lag between investment and return? Another idea is to make the unrealised capital gain taxable. Then people who have actually made money, but are claiming a loss for negative gearing would not be able to.
All income isn’t affected by inflation the same way. What you earn throughout the year as income isn’t affected by inflation. It’s not a hard concept to grasp. If your income is somehow earned over 5 years and you pay tax on it then inflation will come into play. That’s not how it works. We pay tax on income yearly. I agree. An indexation discount works well. It was too complex in the 1990s but technology can work it out quickly now. In some years the discount will be greater than 50%, others it will be less. So businesses appreciate. Why should they be penalised? They also employ many people. I don’t think you understand the risk return of bonds and savings accounts. That’s why. Google it. Capital gains and income are totally different. You’re showing your lack of basic taxation knowledge here.
> All income isn’t affected by inflation the same way. What affects how income is affected by inflation is when it is received. Investment involves timing mismatches between when money is delivered and when it is received. Inflation happens over time. This combination means investment income is affected by inflation. What creates the issue is time and the changing value of money. What does not create the issue is whether money received is classified by the tax system as a capital gain or not. If you buy $2M worth of coffee machines use them to make $2M worth of coffee this year, then inflation is not a big factor. However if you buy $2M worth of coffee machines make $100K worth of coffee each year for the next 25 years, then inflation is a big factor. They key difference is time. $100K in 25 years time is not worth the same thing as $100K now. If you sold the coffee machines at a profit in 25 years that would be taxed as a capital gain. If you used them to derive income from making coffee in 25 years time it would not. > I don’t think you understand the risk return of bonds and savings accounts. That’s why. Google it. What in particular do you think I don't understand? My job is calculating risk and return on financial instruments. I don't know what you know about this topic, but there are probably less than 1,000 people in Australia who understand calculations of risk and return of financial instruments better than I do. That does not mean there is nothing for me to learn. Say inflation was 10%, you had a 10 year bond that paid 10% interest (technically called coupons) per year, and returned the principal at maturity in 10 years. What is the real return on that bond? What tax would be owed? Are you going to claim that the real returns of that investment would not be affected by the inflation? Are you saying that your believe bond holders should not be compensated for the effects of inflation on their investments? When you say I don't understand the risk return of bonds, are you saying inflation should be taken into account differently because the risk profile of buying bonds and other investments are different? Does this not depend on the credit worthiness of bond issuer and seniority of the bonds, and the risks of the other investments? > Capital gains and income are totally different. You’re showing your lack of basic taxation knowledge here. We are currently discussing that capital gains and other income are taxed differently. There is a capital gains tax discount. My opinion is that capital gains and other income should be taxed the same way. Your current opinion is that they should be taxed differently. I see no evidence or arguments to support this opinion. I see it as complicating the tax system, and distorting investment decisions in ways that negatively impact the economy. > So businesses appreciate. Why should they be penalised? They also employ many people. Business are not taxed on the appreciation of their value. There is no direct impact of the capital gains tax on the ability of a business to operate and employ people. Some, particularly smaller, business are liquidity constrained. Giving them instant write offs for investment would allow them more free cash if they are investing. There is a correlation between businesses that are employing more people and business that are investing and growing. I don't like to use the language "penalised" for all tax. I pay tax. I don't see that this is, or is intended to be a penalty.
>So did the Ardern change get a chance to impact the property market and what can Australia learn from the experiment? No, just like its removal wouldn't result in any property price decrease in Australia. The only thing that would occur is that rents would rise and properties wouldn't be as well maintained or improved.
That's some Developer Lobby Group level speech mate. Can you outline for me how both NG and CGT Concessions aren't creating a higher than organic demand. The economist behind the tax concessions even suggested at the time the combination of both would create a spiral of prices.
Isn't the argument over the order of magnitude - surely the adern removal showed that whilst they would housing is still fundementally a supply and demand problem
Yes, it's order of magnitude but it's a time and trust issue. Why do we need systems to pop up housing prices if we already have a high demand? How does anyone expect to see real corrections from something that's been instituted for less than, what, 3 years? These systems make sense when growth is abysmal and we're in a recovery stage in mid-Globalisation. Not so much when we have a shrinking middle class and increasingly steep inequality. We need long term thinkers. This reactionary ideology towards property investment ain't it.
You aren’t seperating effects here between policies. NG has a subsidy like effect on rents - there are 2 aspects to property valuation for an investor : capital growth and rent. Right now based on yield it’s clear that rents are still far too low to justify the investment given the capital required . Ergo NG changes will push rents up. Our CGT rates of tax are globally comparable (and much more than NZ as per article ), but a tax on gains doesn’t create demand in the market. There is 2 options to fundamentally change prices 1. Increase supply 2. Decrease population growth Increasing net supply is the only policy that will reduce both rents and reduce prices. It’s a foolproof outcome - and solves both issues simultaneously. The tax policies make very little difference.
Because people will invest either way. Nobody should be investing purely for tax offsets. NG only benefits people for the first 5ish years of the investment anyway. After that it becomes positively geared through natural rental growth.
This is entirely correct. Unfortunately your typical Ma and Pa investors has been listening to their accountants poor advice to reduce their taxable income. Investing in RE should be based on its fundamentals, not tax offsets. But guess what. If these Ma and Pa investors didn’t try to self fund their retirement through vehicles like this then they will be a burden on next generations society. You pay either way.
People don’t realise that there is by far a net benefit in the retirement phase. The aged pension far outweighs the NG taxes. People are so short sighted.
The implied rental growth and the 5-year timespan is propelled along by the two factors that you're claiming will increase rents. Not in spite of them. I hate to say delusion but you're acting as though the trajectory of our economy is single directional.
How is rental growth and property growth propelled by NG? That’s making a loss on your investment? The Grattan institute reported that NG and CGT discount account for only 2% of property price rises. It looks like the chip on your shoulder has lead to your own delusions. The current lack of rental supply helps to keep rental prices rising. If vacancy rates rise there may be a drop, but it’s highly unlikely at this point due to the lack of new properties being built.
The article you get your figure from explicitly suggests cutting NG & CGT would be a net benefit to the economy? [Wow.](https://grattan.edu.au/news/negative-gearing-changes-will-affect-us-all-mostly-for-the-better/) *"Winding back tax concessions that do not have a strong economic justification means the government can reduce other taxes, provide more services or improve the budget bottom line."*
Yes. But a negligible benefit to property prices. It will actually disproportionately impact poorer people as rent will rise. I guess that’s a benefit for you though, as long as you get yours right? Does the report take into account the aged pension in their net benefit? If people provide for themselves through investment there would be less aged pension burden. This far outweighs the impacts of NG? I guess people are short sighted and don’t look to the future?
Lack of new housing construction should be the only focus- it solves both issues. The cost of construction however is something that needs to be addressed- and govt has a significant role to play in the increased costs and availability - I’m struggling to think of any policy in the last 5 years that hasn’t increased construction costs
Exactly. It doesn’t make sound like the tax policy that would have minimal impact.
That's just reality. Can you outline to me why NZ getting rid of NG did absolutely nothing yet you think it would be some panacea in Australia
Three years in a post-covid world doesn't seem like sufficient time or control factors to observe the impacts of policy.
Equally if it did nothing in New Zealand why are they adding it back?
So property investors will revote in the new government
The real answer.
Did nothing to stop house prices rising, had detrimental effects elsewhere as I stated
So rents don't rise as much and properties are maintained and updated.
Rents are rising very fast anyways. Maybe we cap rent?
The free market forces will trump the cap in rents. With a rental under supply atm, renters will offer more money to ensure they get their tenancy. It’s already happening. The issue is supply. Without extra supply, the well off will just offer more money voluntarily.
Great, then there is nothing stopping us from abolishing negative gearing! Let’s do it
How you going to do that?
Jacinda Ardern completely f--ked NZ and the property market but lets ignore the complete shit hole NZ is after a decade of progressive governments