Was the Budget Good For Property Investors?

By Ed Chan

The good news is that the Federal budget pretty much left property investors alone.

Whilst there was a push by some towards eliminating negative gearing to save claims of $13 billion dollars a year we did not see negative gearing touched.

Whilst most commentators who have supported the push for eliminating negative gearing have argued that the government is losing $13 billion in revenue per annum and therefore negative gearing should be abolished.

This is simply misrepresenting the facts.

Whilst taxpayers have claimed $13 billion in losses in their tax returns the actual revenue forgone by the government is calculated at their individual tax rates. Thus at an average tax rate of 35% the lost revenue is only $4.5 billion.

So the government has not lost $13 billion dollars by allowing negative gearing but rather $4.5 billion is the actual dollars forgone.

Public housing provided by the government only accounts for around 4% of investment properties. The other 96% of housing is provided by the private investor.

Should they disincentivise property investment by removing negative gearing we would see the government having to shoulder the weight of providing a much larger percentage of housing for tenants.

This would in effect cost the government much more than the $4.5 billion dollars a year in revenue forgone due to negative gearing.

In fact it would cost the government in the hundreds of billions to provide public housing.

You may recall that the Keating government attempted to remove negative gearing in the eighties but reversed their decision when the queues for public housing doubled.

So, thank goodness there was some clear thinking shown around negative gearing in this budget

However negative gearing is only one piece of the jigsaw puzzle…

When it comes to the property market, many other factors such as jobs, interest rates, confidence, supply etc. have far greater effect on the property market than negative gearing.

We need to have a growing economy which leads to increased revenues for the government as businesses do well and able to hire more people and with more jobs, our standard of living is improved. This will ensure the property market is stable and continue to grow steadily.

Supply is a very important factor as successive governments have not provided the policies to generate more supply.

Let’s have a look at the changes that could have a direct impact on the property market:

1. The First home buyer savings accounts were eliminated. These were established to assist first home buyers in saving for a deposit and at the end of 2013 there were 46,000 savings accounts opened.

2. The National Rental Affordability Schemes has been eliminated. This was set up to help low income earners by giving them a 20% discount on rental by offering rebate incentives to property investors on new properties. Around 15,000 properties were built under the scheme.

3. The Budget has had a negative impact on market sentiment. And there is a direct correlation between market sentiment and the property market. Consumer sentiment is lower than what it was prior to the election and this will keep interest rates low for a longer period.

As the mining boom only provided around 2% of employment and represented only around 4% of the economy and as it transitions into Production from a construction phase, we need to stimulate the other 96% of the economy that provides the majority of our economic growth and job prospects.

We have never supported property investments in mining towns despite the great rents and as the mining boom subsides many more people will be stuck with properties in mining towns that they cannot sell. We will continue to see these properties drop in value.

There were tax cuts of 1.5% for companies (except big companies) which is an incentive for Companies to invest more and hire more people which should increase economic activity and reduce the unemployment rate.

However we have probably seen the middle class shoulder a large percentage of fixing the budget with the elimination of many family tax benefits, whilst the wealthy has been asked to pay a 2% levy on income above $180,000.

The 2% levy did not go far enough I thought.

 

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