Real Estate MT: Prices, Capital Gains Tax (CGT), Negative Gearing, Foreign Investment, 'Bubbles' - 3

[Power Raid]

Interesting article

http://www.theage.com.au/federal-po...rong-on-negative-gearing-20180108-h0f481.html

Some claimed negative gearing and the CGT discount was to blame for higher property prices. I guess they were wrong.


(This is Part 3.

Continued from Part 2:
https://www.bigfooty.com/forum/thre...gearing-foreign-investment-bubbles-2.1185132/)

 

[Upgrayedd]

Its all confidence. Telling people home dwellings are ridiculous high will freak people out for some reason. Needs to be done however.

Context. Im a dirty 29 year d ruining the economy because i dont think 420,000 dollars is exactly entry level to get into property

 

[Seeds]

Interesting article

http://www.theage.com.au/federal-po...rong-on-negative-gearing-20180108-h0f481.html

Some claimed negative gearing and the CGT discount was to blame for higher property prices. I guess they were wrong.

That policy only refers to removing negative gearing on new properties. Not existing properties. A very small fraction of the market. It also only reduces the capital gains discount by half. It doesnt remove it. On top of that Treasury modelling wont include any impacts on animal spirits and herding behaviour.

 

[tandino]

Tax reform in the name of housing affordability that has very little impact on housing prices sounds like a bit of a cruel joke.

 

[Ice-Wolf]

Tax reform in the name of housing affordability that has very little impact on housing prices sounds like a bit of a cruel joke.

Will help the bottom line though without hurting the property market. Just goes to show that the tax concessions are just expensive bullshit.

 

[Patrick Bullet]

Is there any chance the illegal flammable cladding issue that has plagued a large number of apartment complexes in the major centres could cause a shock to the property market in Australia?

 

[Power Raid]

Will help the bottom line though without hurting the property market. Just goes to show that the tax concessions are just expensive bullshit.

To me it highlights what a poor policy Labor’s and the greens have designed.

Who in their right mind would design a tax system that favours the wealthy and creates a glass ceiling on the ordinary?

We need tax reform but it should be simple, well designed and achieve an outcome it is designed and fair.

Labor and the greens only need two more minutes of thought and they’d actually be on a winner.

Sadly though our political system and electorate prefer noise.

 

[Number37]

To me it highlights what a poor policy Labor’s and the greens have designed.

Who in their right mind would design a tax system that favours the wealthy and creates a glass ceiling on the ordinary?

We need tax reform but it should be simple, well designed and achieve an outcome it is designed and fair.

Labor and the greens only need two more minutes of thought and they’d actually be on a winner.

Sadly though our political system and electorate prefer noise.

You do realise that the whole reason that negative gearing is attractive is because property investors make a loss, right?

 

[Power Raid]

You do realise that the whole reason that negative gearing is attractive is because property investors make a loss, right?

I don't think making a loss is attractive. Rather investors seek to gain exposure to an asset class which will generate a profit. in the case of any good long term investment there is the likelihood of a short term loss or at the very least a real risk of loss. Very few investments make profits, without risk including opportunity cost, from day one.

but yes negative gearing is currently a opportunity for wage takers to reduce their income tax and shift that liability into future years or even permanently lower it. but what to do about it?

I posted the following in another thread:

Taking a step back, the desire to negative gear and other tax management systems is probably easiest tackled by looking at the top individual tax bracket. Why would an individual pay the top tax rate of 45% plus 2% medicare levy plus a medicare surcharge of 1.5% and any other levy that may apply, if you could use a company for example and pay 30% tax?

We have two choices, either lower the highest individual tax rate to 30-35% or increase company taxes to 45-50%. For those old enough to remember, having the company tax rate at high levels, simply didn't work as the revenues and expenses were just rolled from one entity to another. Adding to the issue of globalisation means tax avoidance is even easier if we were to go back to the tax rates of the past.

The other tax minimisation is of course shifting income into low yielding assets that have a propensity to generate a capital gain in the future (like property). Again we have two choices, of getting rid of negative gearing or lowering the top tax bracket to 30-35%.

If we get rid of negative gearing the way Labor has proposed, you would end up with the scenario where the wealthy can continue to negative gear whilst creating a glass ceiling for the ordinary person. That simply doesn't make sense, is inherently unfair and is the birth place of a class system. Worse, their policy was for all asset classes including operating businesses meaning the policy has an unforeseen and unplanned material negative impact society and the economy. So common sense would suggest the lowering of the top bracket to just above the company tax rate is logical. Additionally taxing all undistributed profits in trusts at the company tax rate makes sense.


The final issue to address is how does the ATO the lower tax take from income. The obvious answer is if you can't tax income you tax wealth! After all, wealth creation is a positive but wealth hoarding is not.

A properly designed wealth tax would not be a burden for the ordinary home if the thresholds were set appropriately. Rather they would be targeted on the wealthier end of town.......the same people that benefited from the lower income tax rate.

Further a properly designed property tax would have an element of rebate/ offset against Australian income tax paid. This means investors who do not hold out their property for rent or investors who pay no Australian income tax (foreigners) feel the full burden of a wealth tax.


Simple reform would see a fair playing field for all, appropriate levels of revenue collected, a greater amount of investment put towards operating assets rather than property, a lowering of housing prices and the wealthy paying more tax.

 

[Number37]

Why would an individual pay the top tax rate of 45% plus 2% medicare levy plus a medicare surcharge of 1.5% and any other levy that may apply, if you could use a company for example and pay 30% tax?

The question is NOT why would an individual pay a higher rate, the question is why is there a higher rate for individual taxpayers as opposed to corporate taxpayers.

 

[Power Raid]

The question is NOT why would an individual pay a higher rate, the question is why is there a higher rate for individual taxpayers as opposed to corporate taxpayers.

it makes sense to have the individual tax rate slightly higher than the corporate tax rate due to franking credit system and a scaled individual tax rate.

without doing the exact maths, a person earning $80k probably pays 23% tax. This means even if they were to receive the full $80k in fully franked dividends, they would receive 7% back anyway.

In regards to increasing the company tax rate higher, you only have to remember the 80s tax schemes to know why 30% is about right.


FTR I am strongly opposed to lowering the company tax rate any lower.

 

[Benny78]

The neg gearing is nothing. If you're good enough at it you don't need a crystal ball, or to speculate holding property for years for any growth. Buy it get your 7 figure growth within 18 months and sell. The only reason people hold property is because they're not sure when it'll go up exactly and get in early.

The CGT proposal is far more crippling. People will now have to sell their family home every 2 years if they were to make any money investing.

 

[Scotland]

People buy and hold for a number of reasons. Why pay tax on a $50k profit when you can wait and pay half the tax on a $100k profit? Why sell at all when you can just keep buying properties then retire and sell them one at a time? Buying and selling also incurs substantial cost. Selling a median priced home here to just buy another will cost you $30-40k in stamp duty and agent commissions. If you don't sell you don't have to pay oxygen thieving selling agents.

Investors also hold property to distort the market. Australia has a population of 24m, around 15-16m of whom are working age. There are 9m dwellings. So there's about 2-3 people per dwelling, and if you knock out people aged 15-20 and maybe some oldies living in aged care then it's somewhere around 1-1.5 people in the market for a dwelling, per dwelling.

When people start owning 2, 3, 5, 10 houses they effectively create faux scarcity out of thin air. It's a pretty perverse setup when you have each generation competing not only with each other but with the previous, who are favoured by the tax system. The whole system is designed around each generation getting a worse deal than the previous.

I'm not a fan of negative gearing or CGT concessions in our tax system as they promote speculation and hoarding. We should be encouraging turnover. If someone spends 6 months doing up a house to sell they are punished relative to someone who holds onto it for 5 years, adds no value and writes their losses off against tax. That's nuts.

 

[Power Raid]

People buy and hold for a number of reasons. Why pay tax on a $50k profit when you can wait and pay half the tax on a $100k profit? Why sell at all when you can just keep buying properties then retire and sell them one at a time? Buying and selling also incurs substantial cost. Selling a median priced home here to just buy another will cost you $30-40k in stamp duty and agent commissions. If you don't sell you don't have to pay oxygen thieving selling agents.

Investors also hold property to distort the market. Australia has a population of 24m, around 15-16m of whom are working age. There are 9m dwellings. So there's about 2-3 people per dwelling, and if you knock out people aged 15-20 and maybe some oldies living in aged care then it's somewhere around 1-1.5 people in the market for a dwelling, per dwelling.

When people start owning 2, 3, 5, 10 houses they effectively create faux scarcity out of thin air. It's a pretty perverse setup when you have each generation competing not only with each other but with the previous, who are favoured by the tax system. The whole system is designed around each generation getting a worse deal than the previous.

I'm not a fan of negative gearing or CGT concessions in our tax system as they promote speculation and hoarding. We should be encouraging turnover. If someone spends 6 months doing up a house to sell they are punished relative to someone who holds onto it for 5 years, adds no value and writes their losses off against tax. That's nuts.

I would suggest scrapping CGT discounts actually promotes speculation investment. Who would invest on a 7 or 10 year horizon in a business with real fundamentals when you could simply punt overnight?

R&D, technology, business development, innovation and other real business activities take time. Thus the investment sector need to marry for this to occur in Australia which means our tax system and legal framework needs to also marry this requirement.

 

[King Brown]

I'm not a fan of negative gearing or CGT concessions in our tax system as they promote speculation and hoarding. We should be encouraging turnover. If someone spends 6 months doing up a house to sell they are punished relative to someone who holds onto it for 5 years, adds no value and writes their losses off against tax. That's nuts.

 

[Power Raid]

you don't value technology, R&D, innovation, training and business development?

 

[King Brown]

you don't value technology, R&D, innovation, training and business development?

What.

 

[Power Raid]

What.

Negative gearing affected by Labor’s policy isn’t limited to Property but all asset classes and activities.

The worst hit are the activities people claim to value such as innovation, R&D, business development etc etc

Ouch!

I wonder if Labor voters don't value these investments and activities or whether they weren't aware of the breadth of the policy and the damage it will cause?

 

[King Brown]

Negative gearing affected by Labor’s policy isn’t limited to Property but all asset classes and activities.

The worst hit are the activities people claim to value such as innovation, R&D, business development etc etc

Ouch!

I wonder if Labor voters don't value these investments and activities or whether they weren't aware of the breadth of the policy and the damage it will cause?

What the * does this have to do with my post containing three thumbs up?

 

[Power Raid]

What the **** does this have to do with my post containing three thumbs up?

I read your thumbs up as support to get rid of negative gearing.

Personally I can’t fathom why anyone would support a policy that favours the wealthy and penalises the ordinary.

I also can’t fathom how anyone could favour making R&D, innovation, technology and business development harder in Australia.


But perhaps your three thumbs up was a big no to Labor’s policy.

 

[King Brown]

I read your thumbs up as support to get rid of negative gearing.

Personally I can’t fathom why anyone would support a policy that favours the wealthy and penalises the ordinary.

I also can’t fathom how anyone could favour making R&D, innovation, technology and business development harder in Australia.


But perhaps your three thumbs up was a big no to Labor’s policy.

What drivel.

It was quite clearly three thumbs up to @Scotland’s statement that the tax system distorts the housing market, by rewarding rent seekers and speculators over people who invest in improving the quality and capacity of our housing stock.

 

[Power Raid]

What drivel.

It was quite clearly three thumbs up to @Scotland’s statement that the tax system distorts the housing market, by rewarding rent seekers and speculators over people who invest in improving the quality and capacity of our housing stock.

That’s strange given:

stamp duty is the inefficient tax promoting hoarding and illiquidity in the market.

CGT discounts promote long term invest as preference to speculation.

negative gearing currently provides ordinary people with the same fair treatment only to be afforded to the wealthy under Labor.

 

[King Brown]

That’s strange given:

stamp duty is the inefficient tax promoting hoarding and illiquidity in the market.

CGT discounts promote long term invest as preference to speculation.

negative gearing currently provides ordinary people with the same fair treatment only to be afforded to the wealthy under Labor.

You are boring.

 

[Benny78]

Maybe labour could be smarter by leaving neg gearing and cgt alone. They're going to lose a shitload of votes from people who actually own homes who would've voted for them otherwise.

Hate when elections become about one thing. The vic one was about a road. The fed one about cgt/neg gearing.

 

[ClokesShankedIt]

I read your thumbs up as support to get rid of negative gearing.

Personally I can’t fathom why anyone would support a policy that favours the wealthy and penalises the ordinary.

I also can’t fathom how anyone could favour making R&D, innovation, technology and business development harder in Australia.


But perhaps your three thumbs up was a big no to Labor’s policy.

Ok so remove the policies from property and keep them in place for the items you mentioned. Happy now? I suspect not