Page 3191 - Week 10 - Wednesday, 18 October 2006
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practice of investing in property but, thank heavens, we have got people investing in real estate in Canberra. It addresses the needs of many people who cannot afford to buy a home. My plea here is that, if we make that too uneconomic for people, we are going to exacerbate a problem in relation to housing. And that is already becoming quite evident.
This particular letter that was written to the Canberra Times cited the experience of the author. He had two investment properties that were two-bedroom houses, one in Braddon and one in Yarralumla. In 2005, his Yarralumla property produced rental income of $15,600, against costs of $14,625, on which rates and land tax were $8,666. This resulted in a net gain of only $975.
Mr Stanhope: Was the house negatively geared? Does the letter say?
MR MULCAHY: I will come to negative gearing in a moment, Mr Stanhope. It is a significant factor. In the same year, his Braddon property earned rent of $13,100, against costs of $13,580, of which rates and land tax were $7,420. This resulted in a net loss of $470.
Mr Stanhope has left the chamber. He said, “Was the place negatively geared?” Let us say this particular property was negatively geared. I am not privy to this gentleman’s tax affairs. For that Braddon property, he has got a net loss on his investment of $470. If he were paying the highest rate of marginal tax, he would be probably getting an effective reduction out of that, a saving, in the order of $230. But, thanks to the territory government, he has handed over $7,420. So negatively geared or not, this gentleman has derived an absolute pittance on his property. At the same time, the big winner in this is the territory government.
I am happy to have a debate about negative gearing, because negative gearing, I guess, again shows the Chief Minister’s limited understanding of the marketplace and economics. If he thinks that that is a good investment based on negative gearing, he needs to do a little bit of understanding of economics. He might want to talk to Mr Barr, who will explain to him that that is probably not a very prudent investment, if that is the best return one can gain.
Possibly you could argue that negative gearing would be beneficial if you had tearaway inflation of 20 or 30 per cent, as we used to get under the former Labor government federally, and massive capital growth. But I do not think that is the case. If the government would contend that their taking $7,500 out of this investment in return for this gentleman claiming a loss against his income of $470, effectively getting himself—
Mr Stanhope: What, no depreciation?
MR MULCAHY: We have cited the charges in here, Mr Stanhope. The depreciation, I assume, would be part of those charges. Even with that loss of $200-odd, it begs the question: is an investment return that gives the government of the ACT $7,500 and gives this poor taxpayer a net benefit of about $200-odd equitable? Is that reasonable? Is that a base on which we encourage investment? I suggest to you that that is not the case.
How can private investors justify their acquisitions that seem to bring so little return? The considerable disincentive that high land tax rates have on residential property
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