Taxing times for renters

Updated: Jul 27, 2020

Benjamin Franklin coined the phrase that there are two certainties in life – death and taxes. Due to the Government engineered property Ponzi scheme in Australia, both fates are more likely to affect renters than for their property owning mates.

The ATO published their latest figures recently, and once again it was revealed that the country’s highest income earners pay hardly any tax, if at all. One millionaire owed $700 due to a technicality (ABC). However, while it’s easy to admire the inventiveness of the super-rich, politicians normally court ‘middle Australia’. And middle class Australians are also pretty good at rorting the system, all thanks to generous tax and government incentives, all completely legal of course.

While a growing number of families is renting, and renting for longer periods of time, policies and legislation are heavily skewed towards an ideological glorification of home ownership. Tax incentives such as negative gearing have created a system of wealth distribution from lower income earners to the better off, with disadvantage for renters built into the system by design.

Already, the average disposable household income for landlords is A$135,000 a year, versus A$82,000 for non-landlords – the latter includes 30% of Australians in the lowest income bracket (The Conversation). The battle lines between the asset rich and asset poor are drawn, and threatening social cohesion in that all important middle bracket.

Negative gearing and interest deductions

Property related tax subsidies remain a popular way to minimize income tax in Australia. In theory, rental income from investment properties is captured by personal income tax.

However, most of these properties are ‘negatively geared’. According to the ABC, citing ATO taxation statistics, more than 1.3 million of the nation's 2.2 million landlords declared a net loss on their investment properties last financial year.

The average Australian landlord reported just over $21,000 in rental income, with around $13,300 in interest payments, more than $3,400 in capital works and more than $10,100 in "other deductions" (ABC).

About 80% of property investors are claiming interest deductions. This means offloading the cost of the investment to the tax payer, while the (capital) gains are private and for the individual to enjoy.

The Federal Government has stressed how much money we are spending on welfare payments in the aftermath of the COVID pandemic; the reduced and restricted JobKeeper payments are expected to cost the Government $16.6 billion through to March 2021, and the whole program $130B.

While that is a lot of cash, justified in an economic contraction not seen since the Great Depression, we don't bet an eyelid subsidising property investors with $13 billion in negative gearing offsets per year, every year, even in the fat years. After all, home owners and investors are more likely to vote liberal (AFR).

Energy efficiency subsidies

The list of subsidies for property owners goes on. Another example is the financial help available for home owners to install solar panels on the roof and reduce their energy bills to near zero or even receive payments for supplying energy into the grid.

It’s laudable that Australia is now the world-leader in small scale, rooftop solar. But the way these subsidies are allocated means that renters are once again missing out (e.g. Renew Economy). Rental properties are less likely to have renewable energy, not to mention any form of insulation or window treatment, as well as rely on outdated, energy hungry appliances for heating and cooling.

Already, a third of Australians suffer ‘energy poverty’. Especially older Australians are trying to reduce energy consumption “by refraining from using heating or appliances, using only one room, going to bed fully clothed or not having showers” (Sydney Morning Herald). As a consequence, Australians have a higher mortality rate than Swedes in winter, despite living in a temperate climate.

Aged pension

Under current law, owner-occupied properties are exempt from the means tests for the aged pension and other age-related spending. While the intention is to encourage Australians to save for retirement by putting all their money into their ‘nest egg’, it effectively means that the retirement system favours people with a high level of personal wealth.

By contrast, other savings vehicles are included in the means test and affect the pension you are receiving. Having to pay rent in an overpriced market like Sydney will push people into old age poverty and homelessness. This disproportionally affects women due to the combination of lower income & retirement savings and longer life expectancy. (e.g. Tenants Union of NSW)

COVID stimulus

As expected in a country where home ownership is a sacred cow, recent government stimuli do little to help renters. Advocacy groups rightly point out how the lack of funding for affordable and social housing will affect essential workers and low to moderate-income earners in Sydney and across NSW (The Domain).

Instead, we have seen $25,000 grants for people finally tackling their kitchen reno or granny flat extension (HomeBuilder). And mortgage holders are seeing a further referral of payments due to financial hardship (ABC), while the moratorium of evictions ended in mid-June. Already, Sydney landlords are queuing up at the Tribunal to force tenants out and into homelessness.

Read more:

>> Poor housing to blame for Australians dying at twice the rate of Swedes from cold

>> 3 common myths about the great Australian property dream dispelled

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