A new analysis from the Property Investors Council of Australian (PICA) has outlined the tax impost incurred by the average property investor under existing negative gearing and capital gains tax (CGT) arrangements.
According to PICA, the typical Australian investor is taxed around $167,000 over the life of a loan (30 years), with the net tax payable from rental income over the life of the investment totalling approximately $138,000 under current negative gearing rules.
“If you think about what first home buyers (FHBs) get in grants, stamp duty concessions and the like, it’s very comparable to what investors receive, but investors have to pay a lot more additional tax when home owners pay nothing more,” PICA chairman Ben Kingsley said.
In addition, the PICA analysis found that the average investor receiving a CGT concession of 50 per cent under existing arrangements could pay up to $611,000 in taxes – assuming the asset is sold in the final year of a 30-year loan term.
Commenting on the findings, Mr Kingsley claimed that if the federal Labor opposition was elected to government this Saturday (18 May) and implemented its plan to limit negative gearing to new housing and halve the CGT concession to 25 per cent, the additional tax burden would hit middle-income earners.
“With the majority of the nation’s 2.2 million property investors earning less than $80,000 a year, Labor’s claim about tax loopholes being for the big end of town are, frankly, insulting,” he said.
“It’s totally deceptive to characterise landlords as ‘the big end of town’ in the lead up to election day.”
The PICA chairman said that investors have been “unfairly targeted” by the opposition throughout the current election campaigns.
“Mum and dads are tired of being branded as ‘greedy property investors buying their fifth or sixth property’ when almost 72 per cent only own one,” he continued.
“We’re also fed up with being blamed for higher property prices, when, historically, investors make up just three of every 10 buyers in the market.”
Mr Kingsley added that the PICA analysis was proof that investors are already paying their fair share in taxes.
“By releasing this data, we want the Australian public to understand that we certainly pay our way when it comes to taxes for government to spend on more hospitals and more schools,” he said.
The chairman also expressed concern over the impact that proposed changes to existing arrangements would have on the broader economy.
“We agree with research undertaken by the Property Council of Australia regarding Labor’s policy on negative gearing and CGT – that it will force the average mum and dad investor out of property, which will reduce demand and have a negative impact on prices,” Mr Kingsley added.
“In addition, the policies will also reduce construction over time, which will force up rents when rental supply tightens.”
Mr Kingsley welcomed policy alternatives like the Coalition government’s recently announced proposal (which has been matched by the Labor Party) to reduce barriers to home ownership through the provision of low-deposit mortgages exempt from lenders mortgage insurance via its new First Home Loan Deposit Scheme.
“PICA supports the First Home Loan Deposit Scheme as a financially astute way to assist first-timers into the market,” he said.
“The scheme will assist thousands of people to achieve their dream of home ownership, without drastically reducing the value of that same property, which is the undeniable outcome if negative gearing is restricted to new property.”
He concluded: “Mark my word, property prices will fall nationwide, and rents will rise if Labor proceeds with its foolhardy policy that will see the wealth of everyday Australians erode overnight.”
Labor has fiercely defended its policy position, stating that its proposals would improve housing affordability and facilitate housing construction.
[Related: PM announces new FHB loan deposit scheme]