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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson

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Speaker 1: and hello.

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Speaker 2: Sean Aylmer, Hello Michael.

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Speaker 1: Today's question combines a few of those topics. Sean, it

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Speaker 1: is about negative gearing, and the question is basically, why

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Speaker 1: is negative gearing so politically dangerous?

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Speaker 2: Well, there's about a million Australians that take advantage of

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Speaker 2: the negative gearing rules. Okay, it's a tax break, according

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Speaker 2: and Treasury reckons, there's a million people. If you took

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Speaker 2: that away, that's probably a million votes you're about to lose.

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Speaker 2: I mean, that's the short answer.

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Speaker 1: For the longer one, which is your specialty. Yes, and

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Speaker 1: taking a short answer and making it.

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Speaker 2: Long, Yeah, we can do that.

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Speaker 1: Yeah. But okay, start with the definition of negative gearing.

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Speaker 1: What are we talking about when we're doing this, and

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Speaker 1: then we'll kind of explain kind of why it becomes

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Speaker 1: a politic.

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Speaker 2: We always think of negative gearing on housing, which is

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Speaker 2: the most regular, but it's actually on any asset, and

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Speaker 2: it's where expenses associated with the asset, including interests that

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Speaker 2: you're paying on it is greater than the income earned

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Speaker 2: from the asset. So let's say you buy a house

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Speaker 2: and you pay interest on that, and you pay rates,

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Speaker 2: and you pay all sorts of things. If that's greater,

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Speaker 2: then the income you're getting from renting that house at

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Speaker 2: you are effectively negative gearing your home and you can

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Speaker 2: use that to write off against your other income.

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Speaker 1: It becomes a tax off set.

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Speaker 2: It's a tax off set. It costs the budget about

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Speaker 2: six billion dollars each year. So could you imagine closing

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Speaker 2: that loophole that six billion dollars that the federal government

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Speaker 2: will get. It must come from somewhere, and it must

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Speaker 2: come from the million people who are using negative gearing,

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Speaker 2: so they're going to be worse off.

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Speaker 1: We have seen attempts in the past or just even

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Speaker 1: if it gets mentioned anywhere near an election, it becomes

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Speaker 1: an election issue, right because, as you say, it's a

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Speaker 1: very politically sensitive topic. Was it Bill Shorten? I think

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Speaker 1: who might have had something to do with negative gearing

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Speaker 1: a few years back. And anyway, as as soon as

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Speaker 1: it comes up, everybody jumps all over it, from the

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Speaker 1: media through to the other side. There is a lot

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Speaker 1: of commentary around it. So I mean, you can see

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Speaker 1: why it becomes a lightning rod for criticism of any

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Speaker 1: party that mentions it. So as soon as you start

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Speaker 1: talking about tax reform or reform overall, negative gearing is

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Speaker 1: really one that everyone kind of backs away from.

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Speaker 2: But it's actually not a bad idea to reform negative

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Speaker 2: gearing it Let's say let's say dangerous. Let's say you've

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Speaker 2: got a rental property and you're getting twenty five thousand

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Speaker 2: dollars from it and it's costing you thirty thousand. So

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Speaker 2: there's that five thousand dollars which is excess that you're

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Speaker 2: paying than receiving. If you know an advance that you're

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Speaker 2: going to record a loss from that envas you can

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Speaker 2: actually apply to the tax office to reduce the amount

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Speaker 2: of tax taken out of your salary for example. Really yeah,

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Speaker 2: it's called POWERYG withholding variation. It can actually provide you

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Speaker 2: with more money to your personal cash flow, and then

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Speaker 2: when you sell the house, hopefully you're making all your

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Speaker 2: money because your house has gone from four hundred thousand

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Speaker 2: to eight hundred thousand or whatever it is. So you're

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Speaker 2: doing that in a really tax effective manner. The other

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Speaker 2: thing which we shouldn't get there's a cable gains tax concession.

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Speaker 2: So if you own your house for more than twelve

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Speaker 2: months or an own asset for more than twelve months,

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Speaker 2: you sell it, you get a fifty percent caple gains

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Speaker 2: tax concession. So if you're on the top marginal tax trate,

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Speaker 2: you're only paying about twenty five percent tax on whatever

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Speaker 2: you're selling. That is actually different though, to negative gearing.

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Speaker 2: That one, the cable gains tax concession, that's more like,

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Speaker 2: I don't know, making it up fifteen twenty billion dollars

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Speaker 2: a year.

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Speaker 1: Okay, that's big, that's big. All right. It all comes

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Speaker 1: to the tax reform issue, and we've talked about this

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Speaker 1: on previous episodes that anyone tackling tax reform in this

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Speaker 1: country needs a certain amount of political courage.

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Speaker 2: Right, yeah, yeahs I think is the word you're looking for,

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Speaker 2: political cohness. Susan Lee actually last week or a couple

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Speaker 2: of weeks ago, when she gave that National Press Club,

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Speaker 2: they asked about jest. Would you'd be interested in changing jest?

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Speaker 2: And she said, my instinct is no, because that one's

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Speaker 2: too hard. Jim Chalmers more or less said the same thing.

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Speaker 2: He hasn't actually wielded out. Jim Chalmers changing the GST.

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Speaker 2: But if you're going to the tax reform and you're

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Speaker 2: really serious about it, right, so the tax concessions for

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Speaker 2: superannuations a big one, negative gearing, cauple GAINST, tax concessions

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Speaker 2: on assets sold like houses and stuff. That's the other one,

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Speaker 2: and jest is the third one. If you really want

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Speaker 2: to reform it and make us pay less income tax,

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Speaker 2: they're the three things you have to target.

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Speaker 1: Okay, But in the end, to answer the question, negative

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Speaker 1: gear is politically dangerous because it affects a lot of people.

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Speaker 2: Well, you won't be in your job if you're a

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Speaker 2: politician and you push it too hard, people will worte

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Speaker 2: against it.

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Speaker 1: Okay, there we go, Thank you, Sean, Thank you Michael. Remember,

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Speaker 1: if you've got your own question that you would like

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Speaker 1: us to answer it, go to the website fearangreed dot com,

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Speaker 1: dot au, send it on through there or any of

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Speaker 1: the social media platforms, and Michael Thompson and this is

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Speaker 1: ask Fear and great