Transcript by The Hon Scott Morrison MP

Op-ed, Daily Telegraph

There is an urban myth running around that negative gearing is the province of the rich and should be for ‘the high jump’.

The facts are that negative gearing is used by middle income Australians, particularly younger Australians, to try and get ahead and build a financial future for themselves and, their families while providing a much needed capital injection for new stock into our housing market.

As Social Services Minister I have an interest in this issue. The more Australians take responsibility for themselves, the less they will call on taxpayers in the future to draw down on welfare benefits.

We already require eight out of ten income taxpayers to go to work every day to pay for our welfare bill. Where Australians try to build their wealth and finances for their own retirement we should just say thanks, rather than putting them in our tax sights.

According to statistics from the Australians Taxation Office and cited by the Property Council, of the almost 1.26 million Australians who declare a net rental loss, 883,325 earn around $80,000 or less a year and around 80 per cent of them negatively gear. Also, of the 1.87 million people who declare a net rental interest, over 70 per cent earn about $80,000 or less.

The majority of Australians who declare a net rental loss, almost 73 per cent, only own one investment property. A further 18 per cent only own two investment properties – hardly property barons.

A breakdown of net rental losses by occupation shows average workers make up the majority. They include 62,000 clerical staff, 54,000 teachers, 47,000 salespeople, 36,000 nurses, and tens of thousands of hospitality workers.

Most people who declare a net rental loss are also aged 40 or under.

Middle-income earners declaring net rental interest are also providing housing for other Australians through their investment and at the same time looking to provide for their own retirement incomes, reducing reliance on government.

To gain a better perspective of the role negative gearing plays in our housing market it is worth looking at how things work in other parts of the world.

In the US, institutional investors, pension funds and listed real estate investment trusts (REITs) are key investors in residential accommodation. Apartments represent around 13% of REIT holdings and of the major pension funds in the US who invest in real estate, 20% of their allocation to real estate in 2012 was invested in apartments.

European research shows institutions own 17% of all rental housing stock in Germany, 23% in Switzerland, and 37% in the Netherlands. In the UK, some of the largest institutions invest in rental housing.

By contrast the Australian stock exchange does not have one listed property trust providing residential rental accommodation and super funds owning residential rental accommodation are also absent.

Sure, Stockland and Mirvac, as well as Australian Super and CBus develop property, but they sell it off to investors including mums and dads.

The industry has said tax laws make it difficult for institutions to invest in residential properties as the tax office sees residential property as more a capital than income investment. Also the yield on residential is too low compared to commercial property. This means our institutions favour commercial property.

Thankfully, negative gearing has given mums and dads on modest incomes an incentive to invest in residential property and take up the slack. Given the tax treatment they seem to be happy to accept a lower yield than institutional investors.

So before we all get too carried away with seeking to further extend the reach of the tax base to Australians who are out there having a go, working hard and making the most of what they have got to make a future for themselves, let’s think again.

Whether they be superannuants simply drawing an income from investments they have accumulated that Labor now propose to tax, or to target mum and dad negative gearing investors, we need to remember these are the people who are actually out there having a go. They are acquiring these investments by working, earning an income, and then investing it after paying tax on it. These Australians are the solution, not the problem.

The arguments to tax them more may seem attractive to Labor and those who assess these policies in the hermetically sealed confines of academic offices and econometric models, but when it comes to assessing it against the lived experience of Australians, it’s not hard to come to a different conclusion.