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Reserve Bank of Australia Calls for Review of Negative Gearing

July 16, 2015

RBA has made a call for reviewing the negative gearing, because according to the board it somewhere leads to the risks in property investment.

The bank made a submission to the parliamentary inquiry into home ownership, quoting that speculation fuelled by negative gearing could raise risks in the market and drive up house prices.

As per the submission, “The Bank believes that there is a case for reviewing negative gearing, but not in isolation”. Also “It’s interaction with other aspects of the tax system should be taken into account”.

The Reserve Bank says, “The ability to deduct legitimate expenses incurred in the course of earning income is an “important principal” in our taxation system. It also says “negative gearing can be important for tenant affordability, if it enables landlords to accept a lower yield than otherwise”.

According to the RBA’s submission, “Investors’ share of loan approvals has risen from a little over 30% in 2011 to almost 40% recently. The increase in investor activity and strong growth in housing prices, among other developments, has raised concerns about risks emerging in the housing and mortgage markets”.

The RBA’s data also shows that the share of investors that declared a net rental loss, thus taking advantage of the tax benefits of negative gearing, was just under two thirds in 2012/13, having increased from around half in the late 1990s.

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