Friday, July 08, 2016

Time to get rid of negative gearing

Deborah Russell has an article in the Herald today about negative gearing, the ability of rental property owners to offset losses against their other income. This is effectively a subsidy from the rest of us to property speculators, who pay lower taxes while enjoying tax-free capital gains when they sell. This subsidy in turn helps drive speculation. And it costs us a lot: $250 million a year;

We know that a fair amount of it is going on: in response to an OIA request, Inland Revenue confirmed that in the 2014 tax year, rental property owners claimed about $780m in tax losses. That could amount to a tax subsidy of up to $250m.

One simple way to remove this subsidy, and hopefully provide a slight cooling influence on the property market, is to not allow losses on rental property income to be claimed against other income. Rental property investors could still carry the losses forward, and offset them against any profits that they ever make from residential rentals, but they couldn't write the losses off against other income, like salaries or business income.

Its a good idea, and one the government needs to act on. Better yet, implement a capital gains tax and drive out the speculators entirely. Of course, that would require them to actually do something, rather than just looking for someone to blame, so I think the likelihood of them actually doing it is low.