Strident calls to wind back negative gearing concessions have met with strident opposition.

In a report released on Friday, the Australian Council of Social Services (ACOSS) has urged the government to limit tax deductions for negatively-geared property investments.

ACOSS argued that only the rich benefitted from the current arrangement and that by restricting their negative –gearing revenue the government could raise more than $1 billion a year.

The crux of the argument is that negative gearing encourages over-investment. The concessions given to negatively-geared investors attracted them into the property market, thereby driving up house prices.

The report named, ‘Fuel on the Fire: Negative Gearing, Capital Gains Tax and Housing Affordability’ declared that more than half of all negatively geared investors were in the top 10 per cent of taxpayers.

The report has met with a vicious opposition.

Professor of Institutional Economics at RMIT University, Sinclair Davidson, lashed out: “ACOSS and other people who don’t actually pay tax themselves don’t understand much about the tax system and so they think it’s being rorted.

“People like ACOSS, UnitingCare, and Anglicare – they have an incentive for the government to take in more tax revenue because they want to spend more money. They are going for a tax grab.”

Professor Davidson held that the main beneficiaries of the current system were lower-income earners – people earning between $45,000 and $180,000. These, he said, were the people most likely to be declaring a loss on rental property.

“A loss is a loss,” he went on. “You should carry a loss against all income. New Zealand has it, Japan has it. In the US individuals can’t deduct their losses against all other income, so people incorporate as companies. It’s a work-around, but effectively the same thing is happening.”

Robert Carling, a senior fellow at the Centre for Independent Studies (and former official with the NSW Treasury, Commonwealth Treasury, World Bank and IMF) believed the ACOSS report only focused on the demand side of housing.

“More investment in housing, other things being equal, should lead to more supply eventually … If prices are bid up across the board then that will encourage more supply by developers – and we see that happening.”

An ACOSS spokesman countered by saying countries like the US do not allow unlimited deductions for investment property losses against other income.

“We advocate the closure of tax shelters on a number of fronts to deal with behavioural responses.

‘’There are considerable lags between higher property prices and more construction, due to well-known problems on the supply side..

“In any event, the main problem is that prices are too high by Australian and international standards. This means, for example, that institutional investors are reluctant to invest because their rates of return from rents alone are too low.”

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