Levelling the playing field: the economic case for reforming negative gearing

Housing Housing prices Economic indicators Negative gearing Australia

In June 2015, The McKell Institute released the report Switching Gears, which outlined 5 options for reforming negative gearing in Australia. These options ranged from “Business as Usual” to immediately abolishing negative gearing.

The most appealing option considered was Option 4 in the report: Grandfather existing negatively geared properties and permitting new negative gearing only for new construction. This subsequently was adopted as the basis on the Australian Labor Party policy for the 2016 election, and they have indicated that they will implement the policy if elected at the next federal election, due in the first half of 2019.

In light of developments in the Australian property market since 2015-16, and the repeated claims from Treasurer, Josh Frydenberg and others, that the policy would have severe negative impacts, it is natural to revisit the policy in light of the current state of the Australian property market.

After considering the facts, this report concludes that the policy is still the most appropriate approach to reforming negative gearing. It will level the playing field between owner-occupiers and investors, bolster financial stability, improve the budget bottom line, and encourage new construction.

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