The ‘tax men’ of Australia are subsidising housing investment for no public benefit. Illustration by Suzanne White.
At last week's Tax Forum, David Koch, once finance reporter, now better known as Sunrise's Kochie, added his voice to the many speaking out against the tax loopholes that distort the property market and push up house prices.
What struck me about Kochie's statement was the example he gave of a TV advertisement that told investors to get into property and ''let the taxman pay half''. Hang on. Who's the tax man? Wayne Swan? No. We're all the tax man. What the ad should have said is invest in property and ''let your fellow Australians pay half''.
Not only are we all the taxman, we all, in one way or another, suffer from the high cost of housing in Australia, driven in part by the tax loopholes around investment housing.
I am sure, that among the 1.6 million taxpayers claiming negative gearing deductions, there are parents with adult children still living at home because they can't afford to move out and there are parents with adult children struggling in the rental market. And I'm sure there are people who would like to buy a home to live in, but can't afford to buy close to their jobs and family, so they have invested instead.
They are certainly all taxpayers who live in the wider economy, where the large amounts households have to spend on housing costs drag down spending in other areas and economic activity.
And I am sure that the ''mum and dad'' investors would be horrified at the idea that they are locking other mums and dads, with young families, out of home ownership, and out of the great Australian dream.
We also seem to forget that it's not all small-scale investors; more than 400,000 investors own more than one investment property. This is not just about a nest egg; it's a concerted investment strategy. One in four property investors holds their rental property for only 12 months, just long enough to get the capital gains tax break, and just long enough to disrupt a tenant's life.
There's nothing wrong with investing in housing, particularly if you can make a profit, but that's the problem with the current tax arrangements; they reward losses not profits and according to economist Saul Eslake, these losses costs us all about $4.5 billion a year.
The ''tax men'' of Australia (and in case you forgot, that's all of us) are subsidising housing investment for no public benefit; in fact, we're subsidising an investment that makes it harder for first home buyers to get into the housing market.
Property investors have made decisions about their finances and financial futures based on current tax rules, so I'm not suggesting we pull the rug out from under them; current arrangements can be grandfathered out. We can make a sensible transition from a tax system that encourages losses and speculation, to one that encourages sensible investment and secure home ownership.
The real estate industry is quick to tell us that the sky will fall in if we close these loopholes, but with 90 per cent of investors buying existing properties, the impact on the housing market is overstated. Properties don't just evaporate once the owner no longer gets a tax deduction. Investors may sell up, making it easier for first home buyers, or they will hold on for longer in the hope of longer-term and more stable gains, which means more stable housing for tenants.
At some point, and soon I hope, we have to say enough is enough. We can't let this go on any longer, because if we don't fix the tax loopholes around housing investment then a generation of people will be locked out of home ownership, with repercussions for the rest of the housing system.
Consensus at the tax forum seemed to be that tax reform is hard, and it is, but a generation of housing haves and have nots has more serious consequences for Australia's future fairness. And so to the 1.6 million investors, from one tax man to another – how about we fix this thing?
Sarah Toohey is the campaign manager of Australians for Affordable Housing.
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