Negative gearing is not evil, and superannuation benefits to Australia’s top earners need to be overhauled.
That’s the message in the latest update of the Deloitte Access Economics series “Mythbusting Tax Reform” released this morning. The report, which looks at superannuation incentives, negative gearing and the discount on capital gains tax, says that the 15% contribution tax all Australians pay on superannuation should be replaced with a discount of 15% from the contributor’s marginal tax rate.
That means that top marginal earners currently paying tax at a rate of 45% would still receive a discount, but only to 30%. At the other end of the spectrum, those tax payers who earn little and pay no tax would receive a discount of 15% on their superannuation contributions and, as a result, pay no tax on money they put away to save for retirement.
Deloitte partner Chris Richardson said the change represents good policy and would raise “a bucket of money”.
Deloitte said negative gearing was similar to other taxes within the Australian tax system where “deducting expenses incurred in earning revenue is a accepted principle”. On the question of whether negative gearing has distorted house prices, Deloitte appears to admit it plays some role but puts the blame more on a number of factors including CGT changes made in 1999.
Housing prices and the associated overuse of negative gearing reflect the current mix of low interest rates, a lack of supply, and the overly generous tax treatment of capital gains. That says the overuse of negative gearing is a symptom of other factors, rather than a cause of huge house prices.
A 50% discount on CGT is too big, Deloitte says, because it was constructed with a different, higher level of inflation in Australia in mind.
Here’s the great infographic highlighting the key takeaways from the report: