The latest tax data proves it: negative gearing benefits the rich the most
The release of the taxation statistics for 2014-15 reveals that, while the number of people negative gearing has levelled in the past three years as interest rates have fallen, the greatest share of the benefits of negative gearing goes to above average earners – and the biggest growth is to those owning multiple properties.
With housing affordability and negative gearing the hot topic in the run up to the May budget, the annual release of the taxation statistics by the ATO on Wednesday served to reinforce how greatly negative gearing figures in people’s tax affairs.
In 2014-15, 1.27 million people recorded a rental net loss. This was down slightly from the 1.3 million in the years before and meant that 12.8% of taxpayers were negative gearing.
Again that was down from the previous year and the peak of 2012-13 when 13.4% of taxpayers were recording a rental loss:
The reason for the drop is mostly because the main way to achieve a loss on your rental investment is through payments on the interest of the mortgage. But, as interest rates fall, that cost also falls, which means it is actually harder to record a loss.
Over the past four years, the number of people claiming a deduction for payments of interest on a rental property have increased but the total amount claimed has fallen:
This is then reflected in the amount of rental loss claimed each year. In 2014-15, the net result from rentals was a loss of $3.6bn – well down on the $8.4bn total loss in 2011-12:
That means that the government has in effect not had to lose as much taxation revenue due to negative gearing as in the past. But it is also a warning.
The number of people claiming income through rents has remained around the same level over the past few years but the cost to the government through negative gearing has declined because of falling interest rates. But when those interest rates again climb (as they have for investment properties this year), so too will the rental “losses” and so too will the cost to the government.
Forty-eight Australians who earned more than $1m in 2014-15 paid no income tax
Now is the perfect time for the government to move on negative gearing – because now is when the revenue forgone is at its lowest.
The veritable dump truck of data released by the ATO also allows us to look at who is negative gearing.
Analysis by the Grattan Institute’s John Daley reveals that while Morrison might like to talk up the fact that nurses and teachers negative gear, in reality the people who are most likely to be indulging in the practice, and who also receive the greatest benefit, are those from much higher income earning professions.
The Grattan Institute found that 12% of teachers negative gear – just below the average for all taxpayers – and a mere 9% of nurses do.
By contrast, surgeons and anaesthetists – the two professions with the highest average income – absolutely love to negative gear. Twenty-nine per cent of both occupations negative gear and they also achieve a much higher average tax benefit – over $3,000 compared to nurses benefitting by just $226 and teachers by $289:
The data also allows us to break down negative gearers by income tax brackets.
In 2014-15, 40.1% of individuals earned less than $37,000, they accounted for 24% of all people negative gearing, but only 19% of the total amount of taxable income loss.
By contrast, those earning between $80,000 and $180,000 accounted for 19% of individuals but 32% of negative gearers, and 34% of the amount of rental loss.
But the big disparity is for those earning over $180,000. Only 3.4% of individuals earned that much but they accounted for 8% of all negative gearers and 15% of the total rental loss amount:
It reinforces that, while negative gearing might be done by people across the income spectrum, it is much more likely to be done by those on higher incomes and overwhelmingly they get the biggest share of the dollar benefit.
The data also showed that while, overwhelmingly, most landlords own only one property, the biggest growth has been among those who own more than five properties.
While 71% of those earning income from rents own just one property, since 2012-13 there has been a 9.2% increase in the number of landlords who own five or more properties:
The data suggests that one obvious way to limit negative gearing is to put a cap on the number of properties able to be used for the purpose – it would not hit the average income earners, nor even the vast majority of those who negative gear.
While it appears given the recent pronouncements of Malcolm Turnbull and Morrison that negative gearing will not be touched in the May budget, the latest taxation statistics show yet again that it is a tax minimisation scheme that overwhelmingly benefits the wealthy. And yet because of low interest rates the cost to the budget is at a low point – as interest rates inevitably rise, so too will the cost to the budget from revenue lost.
The time to move is now. Failure to do so will cost the government much more in the future and it will also be much harder to move should the practice become even more prevalent.
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