Inside Money: Property tax reform - Aussies make case against the negative

Some have earmarked a couple of Australia's property sacred cows as potential abattoir candidates: capital gains tax relief, and negative gearing.

David Chaplin is the editor of financial services industry website Investment News.

New Zealand isn't the only country fretting about property prices.

Across the Tasman, the Australian government launched a parliamentary inquiry into home ownership in May, hoping to get to the bottom of its alleged housing affordability problem.

Or as the inquiry chair, Sydney-based Liberal MP, John Alexander, said via press release: "The committee wishes to examine whether the current policy settings are optimal to ensure that all Australians have a chance to own their own home."

On the balance of the evidence so far, it seems no one is particularly happy with the policy settings: there is little optimism about the optimality.

To date, the inquiry has received 54 submissions ranging from government agencies - including Treasury, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) - to industry bodies like the Property Council of Australia and interested individuals like Slow Tung (who on closer inspection turned out to be Siow Tung - the 'i' was poorly-dotted).

The New Zealand audience would be familiar with most of the arguments presented: property investors calling for more land, less red tape and tax relief; with most others suggesting a review of the existing property incentives.

In particular, some submissions have earmarked a couple of Australia's property sacred cows as potential abattoir candidates: capital gains tax relief, and negative gearing (or the ability to property-related investment losses against other income).

While it paints a more nuanced picture of the Australian property market, the RBA's conclusion is clear enough: "Financial stability considerations would suggest that tax and regulatory frameworks should avoid encouraging over-leveraging into property, whether by owner-occupiers or investors."

The RBA has publicly identified negative gearing as one area ripe for reform, as part of a wider review of the tax system.

In a to-and-fro inquiry session, Australian Treasury also released figures showing net (ie taxable) residential rental income went from $156 million in 1999/2000 to -$5.39 billion over 2012/13 (which was an improvement on -$8.25 billion the previous year).
Treasury was also asked if any other countries had comparable rules to Australia.

"New Zealand has similar arrangements on negative gearing for property investment," Treasury answered.