Negative gearing is still alive and well in Australia after it survived the federal budget knife.
There were fears that negative gearing tax breaks might have come under scrutiny in Joe Hockey’s austerity measures in this year’s budget.
Negative gearing tax breaks cost the government around $6 billion a year in lost tax revenue.
Predictions of further rises to unemployment however have possibly kept property out of the firing line this time around. Unemployment reduces people’s ability to service loans and damages the property sector.
The tax break of negative gearing may still be on borrowed time though. Despite providing a big incentive for property investors, it doesn’t actually stimulate housing supply and can also price homebuyers out of the market because they are competing with investors.
The Hockey budget also largely left the family home alone as well. It will remain excluded in pension means testing, and keeps its CGT tax-free status for owner-occupiers.
Had these changes occurred we may well have seen a sell-off of family homes, increased investing in exempt asset classes and buyers opting to buy real estate off shore.
The budget predicted a rise in property construction and hence increased affordability.
“The housing sector is beginning to respond to lower interest rates with a pick-up in prices and leading indicators of construction,” it said.
“These developments have contributed to an improved outlook for the household sector.”