Labor heartland embraces negative gearing

The use of negative gearing has spread from blue-ribbon Liberal seats to “battler” suburbs held by Labor as Australians claim deepening losses on real estate to cut their tax bills.

The heaviest users of the controversial tax break are living in government electorates held by Tony Abbott and top cabinet ministers, including Joe Hockey, who insisted yesterday there was no case to adjust the rules to help balance the budget.

But the single biggest group of people using the property concessions live in the Labor heartland of Canberra, including 18,200 voters in the electorate held by opposition assistant Treasury spokesman Andrew Leigh.

The analysis, published in The Australian ahead of its release by the Australia Institute today, reveals the widespread use of the tax losses in areas once considered “blue-collar” Labor territory in suburban Brisbane, Melbourne and Sydney. There 

are more than 10,000 taxpayers using negative gearing in each of the top 20 electorates in the new report, showing the potential for tax reform to swing votes at the next election at a time when Labor is looking at whether to tackle the concessions.

The findings show the scale of the political backlash against any political leader who attempts to change negative gearing and an associated tax break on capital gains, which together cost the commonwealth about $8bn last year in forgone revenue.

There is scope, however, to target any changes at those who claim the steepest tax losses in the wealthiest electorates, given that more than half of the tax breaks by dollar value go to households in the top 10 per cent of the country when ranked by income.

“People in Liberal Party seats on average were likely to get the largest benefit from negative gearing,” said Australia Institute senior economist Matt Grudnoff.

“Those in Labor seats were second and significantly further back are those in Nationals seats.”

When net rental losses were checked by electorate, those with the biggest deductions were in Malcolm Turnbull’s seat of Wentworth ($20,248 on average for each taxpayer with a net rental loss) followed by Julie Bishop’s seat of Curtin ($19,216) and Josh Frydenberg’s seat of Kooyong ($17,169). The average loss claimed in Mr Abbott’s electorate of Warringah was $16,423 and in Mr Hockey’s electorate of North Sydney it was $15,895.

The Australia Institute commissioned the figures using calculations by the National Centre for Social and Economic Modelling, which extracted the data by postcode from the Australian Taxation Office statistics and matched it to electorates.

The conclusions confirm that the wealthiest voters claim more than half the tax breaks, as reported in The Australian yesterday, but they also show the spread of negative gearing into electorates held by Labor.

Mr Hockey disputed The Australian’s report yesterday that more than half the tax breaks by value go to households in the top 10 per cent by income.

“I read a story this morning that said, that suggested, that rich people get most of the negative gearing so-called pie. Well, it’s not right. In fact, most people who ­access negative gearing are in fact middle-income Australians,” Mr Hockey said on radio.

Grattan Institute chief executive John Daley said the Treasurer was missing the point. “Yes, it is true that most of the people by number who use negative gearing are middle income,” Mr Daley said. “However, most of the benefits in financial terms and most of the cost to the government goes to high-income earners. The idea that you keep negative gearing to look after middle Australia, given where the cost goes, is bizarre.”

While the biggest negative gearing losses are in Liberal seats, voters in safe Labor seats also use the strategies to cut their tax.

The average net rental loss is $14,522 in Tanya Plibersek’s seat of Sydney, $14,481 in Michael Danby’s seat of Melbourne Ports and $14,214 in Terri Butler’s seat of Griffith in Brisbane.

While the average negative gearing losses are smaller in Labor seats, the number of individuals who claim the tax break can be very high in those electorates — showing the risk for Bill Shorten and his Treasury spokesman Chris Bowen in making any changes to the rules.

The percentage of voters who have a net rental loss is highest in Coalition electorates but also high in Dr Leigh’s electorate of Fraser (12.8 per cent) and the ­adjoining Labor electorate of Canberra (13.7 per cent) held by Gai Brodtmann. Because Canberra’s two electorates are so large — there are more than 128,000 voters in Fraser compared to just 67,000 in Solomon — they have the biggest groups of negative gearing taxpayers.

There are more than 18,200 negative gearing taxpayers in Dr Leigh’s seat and more than 17,000 in Ms Brodtmann’s seat.

There are more than 12,000 negative gearing taxpayers in Julie Bishop’s electorate of Curtin and more than 12,000 in Scott Morrison’s seat of Cook.

Dr Leigh said it would be wrong to rule out options for reform. “Labor is not going to make the Coalition’s mistake of ruling absolutely everything out before an election and then springing unexpected changes on Australians afterwards,” he said.“As Chris Bowen recently said, we acknowledge that tax concessions need to be looked at as part of getting the budget onto a sustainable footing in the long term.”

This article first appeared in The Australian Business Review