No need to get upset Shadow, the link came from a bull and supported his post at the time. No bull saw it fit to cast doubt on the author, his motivations or his background at that time, so one must ask, why the sudden keenness from yourself to discredit him now ?
I'm not upset, nor keen to discredit the student. I hadn't read the document until you posted it. You said it was odd that the student didn't consider the alternative costs and social issues that I had considered, and I agreed with you, and suggested that we don't know what his agenda was when he wrote the document. Aside from that, I'm not terribly interested in 'pulling his data to pieces'. There is practically zero chance that negative gearing will be changed any time soon anyway.
I'm not upset, nor keen to discredit the student. I hadn't read the document until you posted it. You said it was odd that the student didn't consider the alternative costs and social issues that I had considered, and I agreed with you, and suggested that we don't know what his agenda was when he wrote the document. Aside from that, I'm not terribly interested in 'pulling his data to pieces'. There is practically zero chance that negative gearing will be changed any time soon anyway.
Glad to hear your not upset.
That's not quite what I said, but lets not fight over that distraction...
So to summarize,
You are not willing/able to provide your theory with hard data & evidence,
and
Despite the author's paper having a large amount of data and evidence, (which you can not / will not discredit), you still think he is wrong.
And
Strindbergs OP, while correct on face value, completely neglected to mention the important limits that (many of) the countries cited in that table have on -ve gearing of IP's... (as detailed in the authors document).
This is not apples and apples chaps...
Finally, if I read your last line correctly, since you feel there is zero chance that -ve gearing will be changed any time soon so you do not care to debate this further regardless of -ve gearing's demonstrated proven failures.
Yes, I can see why you would want to retreat from this topic.
I think we can mark the -ve gearing debate as a 'technical' win for it's supporters (the Government still supports it), while a evidence based win for it's critics.
You are not willing/able to provide your theory with hard data & evidence
and
Despite the author's paper having a large amount of data and evidence, (which you can not / will not discredit), you still think he is wrong
I didn't say the student was wrong (many things he says are correct). However I believe the government may have other motivations for maintaining NG that were not considered by the student. The only way to 'prove' my theory is to ask the government what their motivations are, even then you might not get an honest answer. So it remains a theory. Goodnight.
Apologies.. You are indeed correct in that you did not directly give me the link.. In fact you gave me the link to the thread where KennyJaiz had posted the Link ... No need to get upset Shadow, the link came from a bull and supported his post at the time. No bull saw it fit to cast doubt on the author, his motivations or his background at that time, so one must ask, why the sudden keenness from yourself to discredit him now ?
So, it seems the discussion over the last couple of days has morphed from one where the data is more important, to one where the motivation of the author is most important.. funny as I never hear you say this about bullish publications.
I see a vast wealth of data in this publication... I am yet to see your pull his data to pieces, this is something that yourself and Strindberg are (in all honesty) very good at.. which, I must say, makes that data still valid.
You might want to take the time to notice not all of his conclusions were damning of -ve gearing.. in particular the conclusion that there is no proof of it's effect to rise house prices. Interestingly positive conclusion for -ve gearing IMHO.
As for the question of who should pay for the cost of rental accommodation if we move to a UK style system of public housing... why should he comment on that ? The data he gives speaks for itself on the myths proposed by both the proponents and opponents of -ve gearing.. Why comment on how alternatives should be set up ?
I did not notice him pushing the UK model of public housing in the document, so why do you keep bringing it up ? I'm sure there are other models around the world.. it's not like we only have a binary choice of -ve gearing or UK public housing model to choose from.
As for social implications... why would he ? Did he discuss the social implications of people not being able to afford to buy their own house ? nope... it is not directly relevant to the discussion..
I disagree with your theory of the author's agenda... I am, however, open to any hard evidence you have to support this theory also.
The student's views are not (currently) aligned with our governments views... this comment, however, does little to support your theories, it is simply a fall back position for someone who is unable to substantiate their own position.
Dismissing valid data and conclusions with that kind of comment is hardly the act of someone open to a balanced point of view... it sounds far more like someone entrenched in their own position and unwilling/unable to see outside the box.
I am a qualified tax accountant. I have reviewed in detail the tax implications, the pros and cons of negative gearing. Shadow has the right to question the qualification and the intention of the author behind the document. I personally have no reason to question to motivation the author. But I have seen other articles with various findings. Unfortunately the way the article is presented, it is difficult to confirm or deny the conclusions. The author has not volunteered the data treatment and methodology - I certainly don't understand how the description statistics are derived for me to make an assessment on the accuracy. There is no point pulling the data into pieces when there is such a lack of visibility.
I have not commented on the validity on the article's conclusion, because that was not the discussion, when I presented the link. I have no issue with some of the background information included in the link. However, the author has used "correlation" to draw various conclusions. If you have done scientific research, then you would know that causality (i.e. cause and effect) cannot be drawn from correlation data. For example, because there is a weak relationship between negative gearing and the increase new construction, doesn't mean if you increase negative gearing will not result in new constructions in the long term. It just means the author has no way of controlling other extraneous or confounding variables in the economy, and that is the fundamental deficiency of observational studies - it lacks internal validity.
I am personally indifferent about negative gearing. But I don't disagree that negative gearing as it stands, is not effective in achieving its objectives.
ADD: It doesn't mean the all the conclusions drawn are incorrect and groundless, but when the article is one sided (not a balanced argument), it makes it difficult to judge what has been taken into consideration when writing the document. I personally agree with some points, but disagree with others.
I am a qualified tax accountant. I have reviewed in detail the tax implications, the pros and cons of negative gearing. Shadow has the right to question the qualification and the intention of the author behind the document. I personally have no reason to question to motivation the author. But I have seen other articles with various findings. Unfortunately the way the article is presented, it is difficult to confirm or deny the conclusions. The author has not volunteered the data treatment and methodology - I certainly don't understand how the description statistics are derived for me to make an assessment on the accuracy. There is no point pulling the data into pieces when there is such a lack of visibility.
I have not commented on the validity on the article's conclusion, because that was not the discussion, when I presented the link. I have no issue with some of the background information included in the link. However, the author has used "correlation" to draw various conclusions. If you have done scientific research, then you would know that causality (i.e. cause and effect) cannot be drawn from correlation data. For example, because there is a weak relationship between negative gearing and the increase new construction, doesn't mean if you increase negative gearing will not result in new constructions. It just means the author has no way of controlling other extraneous or confounding variables in the economy, and that is the fundamental deficiency of observational studies - it lacks internal validity.
I am personally indifferent about negative gearing. But I don't disagree that negative gearing as it stands, is not effective in achieving its objectives.
Hi kennyjaiz,
Glad you posted as you are the original poster of the link (used to support your claim a the time). As a qualified tax accountant I would deffer to you the final word on much of the technical aspects of -ve gearing and it's legal standing.
Any chance of throwing links to the other articles with various findings ? I have swung back and forth (thanks to previous strong cases both ways) to be pro and then anti -ve gearing... I have to say I'm no longer a huge fan of -ve gearing but not fixed in stone with my opinion.
When you say the author has not volunteered the data treatment and methodology ... I do note that he sources of his data (down to the page) of his > 160 references... this is hardly absent of sourced data as you seem to imply. I agree there would be a lot of legwork to confirm that data, but that is the reality with any data checking isn't it ? None the less, I agree, there could have been more clarity in the methodology.. I thought the intent of the paper was covered in the abstract and introduction none the less.
Your comments on correlation are valid, however as I'm sure you would have noticed, the correlation of Clearance Rates and house prices has been talked about here at great length... sometimes correlation is the best form of implication of cause & effect that can be used (in the absence of other hard evidence) ... the best use of this correlation is often to highlight the need for more investigation to prove/disprove the cause/effect of the observed correlation..
I felt the author used his language correctly in the conclusion where he seemed to separates the correlation's from the hard data.. The conclusions talk about the need for further research due to the findings and question myths (both pro and anti -ve gearing) due to the correlations found..
Quote: Ultimately there is no compelling policy reason why Australia should continue to retain the tax shelter. Negative gearing results in a significant loss in government revenue, measured in billions of dollars. In return it has provided few indisputable benefits. It appears that negative gearing has increased income inequality, and statistics also support the conclusion that it has had a major effect on housing finance, with a disproportionately high level of housing finance invested in rental properties. Its effect on interest rates is debatable and further research is needed. Endquote:
Quote:
I am personally indifferent about negative gearing. But I don't disagree that negative gearing as it stands, is not effective in achieving its objectives.
Can you elaborate on that ? what do you feel are it's objectives ? (For many, the objectives are all about tax minimization... for others, as Shadow cited, the objectives are about shifting the burdon of cost from public housing to private sector).
I highly doubt Shadows theory would stand up to any serious scrutiny ... Quote: "The main benefit of negative gearing is to the government. It increases the pool of private property investors by making it easier for investors to afford the holding costs, which increases the pool of rental property available, which in turn keeps rents lower than they would otherwise be. Low cost housing - i.e. cheap rental accommodation is necessary for a large section of society. If private property investors did not provide this rental accommodation then the government would be forced to provide it via public housing, which would ultimately cost the government a lot more than negative gearing costs them. I believe public housing costs the UK government a small fortune, and is generally of a much lower standard (ghettos, slums etc) than the private rental accommodation that is prevalent in Australia. Strindberg can probably explain it better - I think he has some facts and figures on this to hand, costs etc."
Putting up the UK public housing model as the alternate to -ve gearing is a straw man tactic.
I am also very keen to hear from Strindberg on the numbers he cited on how cheap -ve gearing is for the Government and what great value it is... however time will tell on that.
Glad you posted as you are the original poster of the link (used to support your claim a the time). As a qualified tax accountant I would deffer to you the final word on much of the technical aspects of -ve gearing and it's legal standing.
Any chance of throwing links to the other articles with various findings ? I have swung back and forth (thanks to previous strong cases both ways) to be pro and then anti -ve gearing... I have to say I'm no longer a huge fan of -ve gearing but not fixed in stone with my opinion.
When you say the author has not volunteered the data treatment and methodology ... I do note that he sources of his data (down to the page) of his > 160 references... this is hardly absent of sourced data as you seem to imply. I agree there would be a lot of legwork to confirm that data, but that is the reality with any data checking isn't it ? None the less, I agree, there could have been more clarity in the methodology.. I thought the intent of the paper was covered in the abstract and introduction none the less.
Your comments on correlation are valid, however as I'm sure you would have noticed, the correlation of Clearance Rates and house prices has been talked about here at great length... sometimes correlation is the best form of implication of cause & effect that can be used (in the absence of other hard evidence) ... the best use of this correlation is often to highlight the need for more investigation to prove/disprove the cause/effect of the observed correlation..
I felt the author used his language correctly in the conclusion where he seemed to separates the correlation's from the hard data.. The conclusions talk about the need for further research due to the findings and question myths (both pro and anti -ve gearing) due to the correlations found..
Quote: Ultimately there is no compelling policy reason why Australia should continue to retain the tax shelter. Negative gearing results in a significant loss in government revenue, measured in billions of dollars. In return it has provided few indisputable benefits. It appears that negative gearing has increased income inequality, and statistics also support the conclusion that it has had a major effect on housing finance, with a disproportionately high level of housing finance invested in rental properties. Its effect on interest rates is debatable and further research is needed. Endquote:
Can you elaborate on that ? what do you feel are it's objectives ? (For many, the objectives are all about tax minimization... for others, as Shadow cited, the objectives are about shifting the burdon of cost from public housing to private sector).
I highly doubt Shadows theory would stand up to any serious scrutiny ... Quote: "The main benefit of negative gearing is to the government. It increases the pool of private property investors by making it easier for investors to afford the holding costs, which increases the pool of rental property available, which in turn keeps rents lower than they would otherwise be. Low cost housing - i.e. cheap rental accommodation is necessary for a large section of society. If private property investors did not provide this rental accommodation then the government would be forced to provide it via public housing, which would ultimately cost the government a lot more than negative gearing costs them. I believe public housing costs the UK government a small fortune, and is generally of a much lower standard (ghettos, slums etc) than the private rental accommodation that is prevalent in Australia. Strindberg can probably explain it better - I think he has some facts and figures on this to hand, costs etc."
Putting up the UK public housing model as the alternate to -ve gearing is a straw man tactic.
I am also very keen to hear from Strindberg on the numbers he cited on how cheap -ve gearing is for the Government and what great value it is... however time will tell on that.
To clarify, I was a tax practitioner, not a policy or law maker. So, I doubt I have any more insight about the legal standing of NG than other taxpayers. Unfortunately, the articles and case studies I was referring to are in hardcopy used during my studies and presumably copyrighted.
We have negative gearing in Australia because it is consistent to Australian Accounting Standards. When a taxpayer generates an assessable income, then the corresponding expense incurred should be deductible. The contention is whether it should be deductible against the individual’s personal income, or it should be “quarantined” for future income or capital gains from the same income source/ investment class. The assessment by the law maker in 1930s and subsequently in the 90s is that all expenses generated from investments and businesses (when passed certain tests), should be deductible against income tax. It would be inconsistent to discriminate between investment classes, unless there is compelling reason to do so. One of the criteria for any tax deduction is to have the necessary nexus with the income generated. Therefore it stands to reason that the provision of any tax deduction is ultimately to raise tax revenue for the ATO. (e.g. gambling winnings and expenses are not assessable under ITAA 97, because it is unlike ATO will benefit from this provision). However, in this case, it has become one of the major legally acceptable tax minimisation strategy from the ATO’s perspective. However, I suspect the 3 levels of government generate more revenue by taxing rental income than to exclude NG (the income and expense needs to be considered together in order to be consistent with the matching rule).
In terms of the objective of NG from a public housing perspective, the theory is sound. The tax incentive of NG will increase the demand from property investors and therefore increase the supply of rental properties available for renters in the long term. The logic is sound. However, the theory is difficult to test in reality even using multiple regression analysis, as there are many variables to take into consideration. I acknowledge, however, there is no motivation for property investors in general to act altruistically and reduce the rent. So while more housing can result from NG, rent reduction may not be visible. But the question is, what is the alternative? How high will rent go without NG in capital cities with low vacancy?
I didn’t say or imply an absent of sourced data. I mentioned there is a lack of transparency of how the data is treated (i.e. presented, graphed or summarised)
I have noticed the discussion on the relationship between clearance rates, but I make no inference about the causality beyond the positive correlation. And no, I don’t think correlation is the best form of implication of cause and effect, sometimes or otherwise. You may notice a correlation between alarm clocks going off and sunrise – but it is not an indication that the alarm clock going off has in any way caused the earth’s orbit. There may also be correlation between the beeping of the microwave and hot food, but it doesn't mean the beeping sound has the ability to heat up the food molecules. But yes, more investigation is required.
To clarify, I was a tax practitioner, not a policy or law maker. So, I doubt I have any more insight about the legal standing of NG than other taxpayers. Unfortunately, the articles and case studies I was referring to are in hardcopy used during my studies and presumably copyrighted.
We have negative gearing in Australia because it is consistent to Australian Accounting Standards. When a taxpayer generates an assessable income, then the corresponding expense incurred should be deductible. The contention is whether it should be deductible against the individual’s personal income, or it should be “quarantined” for future income or capital gains from the same income source/ investment class. The assessment by the law maker in 1930s and subsequently in the 90s is that all expenses generated from investments and businesses (when passed certain tests), should be deductible against income tax. It would be inconsistent to discriminate between investment classes, unless there is compelling reason to do so. One of the criteria for any tax deduction is to have the necessary nexus with the income generated. Therefore it stands to reason that the provision of any tax deduction is ultimately to raise tax revenue for the ATO. (e.g. gambling winnings and expenses are not assessable under ITAA 97, because it is unlike ATO will benefit from this provision). However, in this case, it has become one of the major legally acceptable tax minimisation strategy from the ATO’s perspective. However, I suspect the 3 levels of government generate more revenue by taxing rental income than to exclude NG (the income and expense needs to be considered together in order to be consistent with the matching rule).
In terms of the objective of NG from a public housing perspective, the theory is sound. The tax incentive of NG will increase the demand from property investors and therefore increase the supply of rental properties available for renters in the long term. The logic is sound. However, the theory is difficult to test in reality even using multiple regression analysis, as there are many variables to take into consideration. I acknowledge, however, there is no motivation for property investors in general to act altruistically and reduce the rent. So while more housing can result from NG, rent reduction may not be visible. But the question is, what is the alternative? How high will rent go without NG in capital cities with low vacancy?
I didn’t say or imply an absent of sourced data. I mentioned there is a lack of transparency of how the data is treated (i.e. presented, graphed or summarised)
I have noticed the discussion on the relationship between clearance rates, but I make no inference about the causality beyond the positive correlation. And no, I don’t think correlation is the best form of implication of cause and effect, sometimes or otherwise. You may notice a correlation between alarm clocks going off and sunrise – but it is not an indication that the alarm clock going off has in any way caused the earth’s orbit. There may also be correlation between the beeping of the microwave and hot food, but it doesn't mean the beeping sound has the ability to heat up the food molecules. But yes, more investigation is required.
Thanks for elaborating kennyjaiz.
I guess the alternative to -ve gearing in Australia is a modified form of -ve gearing where it is not a complete frat party with no reasonable limits...
eg. limit to the age of a property that can be claimed against for -ve gearing, and perhaps some ceiling to the amount of money that an individual can claim against their salary/wage may be an interesting idea.
Basically, Some of the many other limits that all those other countries in cited in Strindberg's table but who's details were not listed.
I highly doubt Shadows theory would stand up to any serious scrutiny...
Why don't you apply some serious scrutiny to it then, and try to find out?
Another point... last time NG was removed, rents spiked in Sydney and Perth, cities with low vacancy rates at the time. But rents were flat in Melbourne and Adelaide, and fell in Brisbane. Some people use this to claim that NG does not place downward pressure on rents, because rents didn't rise everywhere when it was removed. The problem with that theory is it does not consider what would have happened if NG had not been removed. Perhaps rents would have fallen in Brisbane anyway, due to an oversupply, and removal of NG simply reduced the magnitude of that fall, rather than completely reversing it.
We can also see from the chart that a few years after NG was reintroduced, rents fell in every city, and kept falling (in real terms) for many years. A few years is probably how long it would take for investors to start getting back into the market again, and adding to rental supply in a substantial way. However, again there is no way to prove that NG was responsible for that fall in rents, because we don't know what would have happened without NG. Maybe rents would have fallen anyway.
And this is a key problem with the document (which Kenny has also mentioned... "the author has no way of controlling other extraneous or confounding variables in the economy"). Basically, we can't confirm that NG does or does not have a particular effect on the property market because we have no way of knowing what would have happened to the property market if NG wasn't there. There are far too many different variables acting on the property market at any one time to be able to isolate one variable and prove it is having a particular effect. All theories about the impact of NG are unprovable. So you can attempt to apply 'serious scrutiny' to my theory if you wish, but neither of us can prove anything either way.
The only things we can 'prove' are some of the statistics, which Strindberg has provided, and then we must draw our own conclusions and form our own theories based on this data.
Quote:
The cost of NG is about $3b a year. $3b will buy about 10,000 social homes at the most, representing about 0.1% of housing stock.
In Australia about 5% of stock is public rented and about 25% of stock is private rented.
In the UK 18% of stock is public rented and only about 12% is private rented.
On top of the huge cost of public rented stock (including all the massive loss making housing association stuff) which is all rented out at a huge loss, the UK is now paying 20 billion pounds a year just for housing benefit to the poor and unemployed.
I guess the alternative to -ve gearing in Australia is a modified form of -ve gearing where it is not a complete frat party with no reasonable limits...
eg. limit to the age of a property that can be claimed against for -ve gearing, and perhaps some ceiling to the amount of money that an individual can claim against their salary/wage may be an interesting idea.
Basically, Some of the many other limits that all those other countries in cited in Strindberg's table but who's details were not listed.
If the negative gearing is capped at a certain point, then that may deter the construction of new properties, as those properties benefit most from negative gearing due to the high depreciation rate.
While I don't see NG as an effective measure to promote lower rent, I can see more potential harm by removing NG from a pure rent movement perspective in the long run. Taxation is a complex matter.
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