Kearney on Labour’s negative gearing policy

Nick Kearney writes in the Herald:

I was fascinated to see Andrew Little’s speech to party faithful this week. The references to ending property speculation were intriguing.

The three policy elements involved bashing property speculators, but “mums and dads” saving for their retirement aren’t going to be affected apparently.

Except they are the ones who will be most impacted.

I was reading this speech while watching a replay of the Warriors capitulation at the hands of Penrith, and right about now my pain doubled.

Surely Little was referring to investors who claim tax losses on their rental investment properties, not speculators.

It had to be, because I have never come across a property speculator who claimed a tax loss against their rental investments.

The two are mutually exclusive. Speculators are not investors, and vice versa. Indeed, the law prohibits speculators from claiming tax losses against personal income as these losses are ring-fenced. They are currently liable to pay tax on their gains, whether sold within two years, or more.

So I read more of his speech. Was it meant to hit large-scale investors who continually use equity to buy more properties and accumulate tax losses? It seemed not.

Little continued by saying the policy “is about the big speculators who purchase property after property. It’s about those big-time speculators who are taking tens of thousands of dollars a year in taxpayer subsidies as they hoover up house after house.”

Speculators two, investors nil.

Who wrote this speech? Surely the actual policy would clear the matter up. Alas, I shouldn’t be so optimistic.

Foolish boy.

The start was encouraging. It said: “Losses from rental property investments will be ring-fenced.” That’s better. It hits the proper target. Labour had finally hit the right nail.

But the nail went into rotting wood. Because with the next smack it said: “Speculators will no longer be able to use tax losses on their rental properties to offset their tax on other income, a practice called negative gearing.”

Oh dear. Maybe they just rushed it. I’d better read on.

“The biggest users of this loophole are large-scale speculators who own multiple rentals and use losses on new acquisitions to continually reduce their tax.”

Most, no all, of my clients use rentals as long-term investments, not for short-term speculation. I have some who are in their early 20s, and they understand the difference between the two.

My incredulity was almost over, or so I thought.

Yet the best was yet to come. According to Labour: “Ending this loophole will not affect most people who have bought a single rental as a long-term investment because most of them are not using it. Those that do use this loophole generally only do so for a few years after purchase.”

There are so many errors with this statement, it needs another column to explain them all. But as a sweetener, I can confidently state that most long-term investors are using the alleged “loophole”.

And it isn’t a loophole.

It’s not a loophole as such, it’s applied across the board to every investment, whether it involves property, or not.

Yep.

All of this was a shame, because some of Labour’s housing policy has a lot of merit, particularly the parts around removing the rural urban boundary to enable houses to be built.

I wish they’d mention that policy more often. It is their best one.