Question

QUESTION: 1

The Labor Party, in opposition, currently has a policy, as a major part of its election strategy, to abolish negative gearing for existing investment properties (but retaining negative gearing only for newly constricted homes). The Liberal government rejects this approach and has said, if it wins the next election, that it will retain negative gearing for all investment properties.

Required:

In terms of tax policy arguments, what is the justification for the Labor Party approach? Which of the two opposing policies on negative gearing do you prefer? In no more than 250 words, please provide a reason to support your view.

Answer 1

In terms of tax policy arguments, these are a few of the justifications for the Labor Party approach to abolish negative gearing for existing investment properties but retaining negative gearing only for newly constricted homes:

• Negative gearing for existing investment properties benefits more to the rich investors who already have high incomes and probably have enjoyed advantages of tax deductions for considerable time on their investment properties thus making them richer and creating a greater social divide between different socio-economic classes of the society.
• Retaining negative gearing for newly constructed properties provides tax benefits targeted for those individuals a greater portion of who are buying the properties for first time. They are encouraged to invest and save so as to become self-sufficient at retirement with their own living place.

I would prefer the Labor party approach to negative bearing due to :

1. It helps in reducing the divide between different socio-economic classes of the society so that the rich don’t become richer through tax deductions at the expense of the government.

2. It would provide additional government revenue in terms of higher taxes on existing properties so that the government is able to provide other programs specifically for the lower and middle socio-economic class of the society and does not lose revenue by subsiding the already rich section of the society.