Scrapping negative gearing not the answer to housing crisis

Their proposal reveals a deep misunderstanding of how negative gearing works and the long-term benefits it brings - not just to investors, but to the broader economy. Let's start with the basics.

Negative gearing simply means that when the costs of owning a rental - interest, maintenance, land tax, insurance - exceed the rent it earns, the investor can offset this loss against other income.

Most negative gearers today are in the 30 per cent tax bracket - not the top one. So, if they lose $10,000 a year, the tax deduction is worth about $3000. The remaining $7000 is paid by the investor. It's hardly the "rort" that critics claim.

This is a long-term play. Consider a common scenario: someone buys an investment property, and over time it moves through three phases.

In the first five years, it's negatively geared and might cost the government $15,000 in forgone tax. In the next five years, it's neutrally geared: no deduction, no tax. From year ten onward, it becomes positively geared, producing income and tax revenue for decades.

Fast forward 35 years. The investor reaches pension age. The property has appreciated, but they fail the asset test and miss out on the age pension.

To fund retirement, they sell - and get hit with a capital gains tax bill. That's another big payday for the government. For a modest up-front cost, the return to Treasury is substantial. It's not a loophole - it's delayed revenue.

Now imagine if the Greens also froze rents. What happens then? Landlords still face rising costs, but their income is capped.

Over time, maintenance gets deferred, properties deteriorate, and tenants suffer. It's happened everywhere rent controls were tried - New York, San Francisco, Berlin. Supply dries up, quality crashes, and renters end up with fewer options and worse outcomes.

The principle is simple: the more hostile you make property investment, the fewer rentals will exist. And when supply falls, rents rise.

But the most absurd comment came from Greens MP Adam Bandt, who claimed share market volatility would push Australians to abandon shares and rush into property, driving prices higher. That ignores how super works.

Australians have over $4 trillion in super - much of it in shares - and most of it is locked away until age 60. You can't just cash it out to buy a house.

And experienced investors don't panic in downturns. They ride it out - that's investing 101. In fact, we recently saw the biggest single-day gain in the share market's history. Volatility is normal. It's no excuse for panic-driven housing policy.

Then there's the claim that abolishing negative gearing will reduce house prices. Maybe it would. Maybe not. But investor confidence is already fading. New restrictions, higher costs and more red tape have taken a toll. That's one reason rental supply is shrinking - and rents are rising.

And what about affordability? In Queensland, the median house price is about $950,000. Stamp duty on that is $32,500 - a huge hit before you've even moved in. That's a massive burden for first home buyers.

If governments really want to help people into the housing market, they should reform stamp duty and increase supply.

Those are the kinds of changes that actually make a difference. Blaming negative gearing might win headlines, but it solves nothing.

Question: I am 60 but plan to continue working until 64. My super has performed far better than I anticipated, and the balance is now well over $2m. I have read that a TTR pension is not subject to the transfer balance cap. In a year or two, I will start a TTR pension using the amount over the transfer balance cap (potentially around $300-400k by then) and then draw that down until I eventually retire fully. Can do this, or am I misinterpreting something? It would seem to be a simple way around the transfer balance cap issue.

Answer: The transfer balance cap (TBC) is a lifetime limit on the amount a person can move from super accumulation phase (where earnings are taxed at up to 15%) to retirement phase pension (where earnings are tax free). TTR pensions are not subject to the TBC, as earnings within a TTR pension are taxed the same way as super accumulation.

You can commence a TTR pension now that you have reached your preservation age, however, it will not help with saving tax on the earnings. Note also that you can only access up to 10% of the balance of a TTR pension each year as pension payments.

When you stop working, you may consider commencing a retirement phase pension up to the TBC limit, which will rise to $2m on 1 July 2025 and may be further indexed by the time you retire. Any excess balance could be retained in accumulation phase as there is no compulsion to remove it from the superannuation environment.

Question: When you receive questions about market volatility, you typically advise staying invested for the long term while keeping at least three years expenses in cash. Does this mean simply holding it in a savings account?

Answer: The idea is to avoid being forced to sell growth assets during an inevitable market downturn. Keeping three years expenses in cash is shorthand for reviewing your portfolio and budget to ensure the next three years planned expenses are covered. If you're in superannuation, part of your fund may already be in a cash-type option. If you're a personal investor, you could hold cash in a bank account. You should also consider regular income sources like rental income and share dividends. The key is to never be caught short.

Question: My husband and I have no children, but we have a godson who is three and we were thinking of opening a Trust Account so we could buy shares, with him as the beneficiary when he comes of age. Is this the best option? The other option is opening a bank account in his name, but it will grow very little over the years. Can you advise on the best way to invest money every year to get the best return when he turns 25? We believe 18 is too young to access a large sum of money.

Answer: The problem with investing for children is the punitive tax rules. If the money is held in the child's name or in trust, income over $416 per year can be taxed as high as 66%. If held in the name of a parent or grandparent, it could be taxed in their own name, and a growing balance might affect their age pension. Theres also capital gains tax if growth assets are involved, which as you say are the best assets to hold long-term. The solution Ive often recommended is to invest in insurance bonds. The investment earnings are tax-paid within the bond at 30%, meaning theres no further tax to include on your annual tax return, and the funds can be transferred free of CGT to the godson at a time of your choosing. You have a wide choice of asset selection, just like superannuation, so make sure you take advice.