Lower rental losses cast doubt over savings to federal coffers

Tuesday, 5th Apr 2016
Categories: Market News, Newsletter

The amount of negative gearing losses has more than halved in 2 years, according to new statistics from the ATO, casting doubt over the effectiveness of changing the policy’s structure to make savings in the federal budget.

The latest figures from the Australian Taxation Office show that net rental losses, which is the amount investors can deduct from their taxable incomes, dropped to $3.7 billion in the financial year ending June 2014.

That is a 5-year low and down 53% from the financial year 2012 when net rental losses topped $7.9 billion.

The fall in rental losses can be partly attributed to lower interest rates, as investors’ costs have also dropped in line with declining repayments to lenders.

Given that the Reserve Bank of Australia (RBA) has cut the official cash rate two more times since the end of the 2014 financial year, we’re likely to see negative gearing losses fall even further.

The collapse in rental losses casts doubt over Labor’s policy to save the federal budget $32 billion over a decade by changing negative gearing, including limiting concessions to investors who only purchase newly constructed properties.

The ability to achieve these savings seems even more unlikely as RBA governor Glen Stevens continues to leave the door open for further rate cuts in 2016 while inflation remains in check.

Many economists are factoring in at least one rate cut later this year, which would take the official cash rate to below 2%.

As it stands, interest rates are likely to remain low for the short term which will make it harder for Labor to save the slated $32 billion for the federal government’s coffers.