A leading economist has called on the federal government to end negative gearing to limit the potential damage of a dangerously overheated investor market.
The Bank of America Merrill Lynch’s chief economist, Saul Eslake, said the controversial property tax should be “grandfathered” – continued for those who currently use it and banned here on in for everybody else.
Neither was Mr Eslake a fan of the RBA’s mooted changes to lending laws – where investor borrowing limits would be curbed – saying they wouldn’t work or, worse, would hurt those who are not the source of the problem.
He said ending tax concessions through negative gearing going forward was the “simple answer” without impacting those who already use it.
“If you grandfather it so that you’re not taking it away from the 15 per cent of the electorate who has it, then my view is: what’s the problem?” he said.
Mr Eslake agreed that the biggest hurdle to eliminating negative gearing was convincing politicians they wouldn’t be walloped at the ballot box by furious investors.
“If the government or the opposition were to present it properly, nor should there be a political backlash because they are not taking a privilege away from anyone who is currently enjoying it,” he said.
However, senior economist at the Domain Group, Dr Andrew Wilson, believes negative gearing is so entrenched, and that the pros so outweigh the cons, that it’s here to stay.
Dr Wilson believes investors build the dwellings governments used to and “as investors, there are no guarantees that you’ll get your tenant, you’ll get your yield, you’ll get your cash flow, or your capital growth” and they should be duly compensated for that with tax concessions.
“If there’s no incentive the property market would be dead,” Dr Wilson told Residential Property Manager's sister title, The Adviser. “Investors would take their money to equity markets or gold or stamp collecting.
“The argument against negative gearing is nonsense; sure they might tinker with (the laws) at the edges, but it’s here to stay,” he said.