"We need some political courage... grandfathering it is an option we should look at": Curtin MP Kate Chaney on reshaping negative gearing (11 Sep 2024)

Now, is it time to wind back negative gearing and other generous tax concessions on investment properties? Some interesting new polling from YouGov was released this week, showing majority support for a highly politically charged policy: scrapping negative gearing tax concessions. And it's something the independent federal member for Curtin has been pondering. Welcome back to Drive, Kate.

Kate: Thank you very much, Jo.

Jo: You asked the question today: What are your thoughts on negative gearing? Ditch, keep, or reshape? What was the response?

Kate: Well, I think there is a fair bit of interest, from the responses I saw today, in at least reshaping it, ditching it, or reshaping it. And I think it's really interesting that we have these political taboos that no one's allowed to talk about. We need some political courage. We need to actually open these conversations because we're desperately in need of tax reform. But everything just gets pushed onto the back burner because it's too controversial.

Jo: It was brought in during the 1930s in circumstances similar to today to address housing issues and lack of supply. Can we pinpoint when it actually began influencing the division of wealth?

Kate: Often, when I talk to economists like Saul Eslake, we see this huge division between the haves and the have-nots, and a lot of it is tied to property. In the last 20 years, things have shifted. Twenty years ago, the average house cost about four times the average income. Now it's more like eight times, so housing is half as affordable as it was 20 years ago. Capital gains tax, paired with negative gearing, has also contributed to this. The reality is, if we introduced these policies to make more housing available and vacancies are now under 1%, we need to ask if it's working, because it doesn’t seem to be. There are other things we could be spending that money on.

Jo: Is winding back negative gearing policy really the poison chalice it's made out to be?

Kate: It seems more a case of poor politics rather than poor policy. It needs to be in the context of a broader discussion. If you ask about any tax concession, people will say, "I want to pay less tax." But if you talk about what we can have instead, the discussion becomes more reasonable. People are willing to talk about this. Some have suggested limiting it to one investment property or protecting the offset only against that income source, rather than offsetting it against income from your job. Grandfathering the policy to protect those who made decisions based on the current rules is another option. There are ways to do this without it being a hysterical issue.

Jo: The YouGov poll out this week found that six in ten Australians now support abolishing negative gearing altogether. If there’s public support, why are politicians still gun-shy?

Kate: This is the problem with the two-party system. The focus is entirely on what it means for the next election rather than making the right long-term decisions for the country. That’s why it’s important to have crossbenchers who are willing to have these courageous discussions. David Pocock and Jackie Lambie have proposed limiting negative gearing to one property and halving the capital gains tax discount. We can't be driven only by what's popular in the polls; we have to think about the future.

Jo: When Pocock and Lambie proposed this, their costings indicated the government would have an extra $6 billion a year to spend on social and affordable housing. But what about those who've structured their investments and retirement around negative gearing laws?

Kate: That's why grandfathering is an option we need to look at. I understand that if you’ve made investment decisions based on certain rules, you want to see those rules stay in place. But we also need to balance that with intergenerational equity. Let’s have that conversation and not treat it as a taboo.

Jo: Finally, it’s been argued that changes to negative gearing could push up rents if investors pull out of the market. Don’t we need housing investors to provide homes to rent?

Kate: We do, and we need to examine the impact closely. Analysis suggests house prices could reduce by about 2% and home ownership could increase by about 5%. It may not sound like a lot, but we need all the levers we can get right now. The big issue with housing is supply, and we need to pull all the levers to get more houses. This change would also address fairness, so that people trying to buy a home aren’t at a disadvantage when competing with those buying investment properties.

Jo: Kate, thanks for your time.

Kate: Thanks so much, Jo.

Jo: That was the independent member for Curtin, Kate Chaney.

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