Interesting Article on Negative Gearing

I thought that this may be an interesting read on the future of negative gearing (from The West Australian online)… There is a lot of rhetoric building on the subject of whether negative gearing will be here in the future and what impact that will have on housing sales and pricing,

Please give me a call if you have any questions.

Andre Thane

ANZ boss Mike Smith has added to the push for Australia's negative gearing rules to be overhauled, saying the current system "doesn't feel right".

Mr Smith said the government should look at negative gearing - which allows property investors to claim interest on loan repayments against their income - as part of a broader review of the tax system.

"It is somewhat ironic that we live in country which encourages borrowing and discourages saving. That doesn't, somehow, feel right," he told a Trans Tasman Business Circle lunch on Wednesday.

"But I don't think you can look at negative gearing in isolation, I think the whole tax system needs to be looked at."

Mr Smith's comments follow calls from economists and the Greens to abolish negative gearing, with claims it unfairly benefits rich investors and pushes up property prices.

The Greens this week released research from the parliamentary budget office showing how axing negative gearing for new investors would save the budget nearly $3 billion over four years.

Bank of America Merill Lynch Australia chief economist Saul Eslake has said there is a "very compelling" case for scrapping the tax incentive to cool the hot Sydney and Melbourne property markets.

However, Prime Minister Tony Abbott and Treasurer Joe Hockey have ruled out any changes to existing rules, with Mr Hockey saying abolishing negative gearing would push rents up.

A report by HSBC on Wednesday showed Sydney prices have jumped 39 per cent in the past three years, while Melbourne prices were up 22 per cent, though the average price for the rest of the country was 10 per cent.

But Mr Smith doesn't think the Sydney market is in a bubble, yet.

"I don't think its quite a bubble yet but it certainly has the potential, so I think it has to be watched closely."

And he said while there were growing concerns about housing affordability in Sydney, it was still much cheaper compared to other major cities overseas.

"It's all a relative game, I was speaking to an investor the other day who was saying `oh house prices are getting higher in Sydney, but compared to Hong Kong and compared to New York, Sydney's quite good value'," he said.

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