A few weeks ago, I heard the government has decided local production of Holden cars is so important that we can afford to subsidise the operation for the next decade. The amount of the subsidy is somewhere north of $200 million, and what do we get for our money?
We get continued employment for a number of South Australian workers, and of course protection for Australian manufacturing capabilities. Of course, other car manufacturers enjoy the same privileges, so I was interested to read that South Australia’s Centre for Economic Studies has suggested that the handouts are bad public policy.
But in case you are thinking I have an axe to grind with car manufacturers, let’s move on to sports people. Once again, the government spends a considerable amount of our tax dollars supporting the development and promotion of our athletes, with a view to hearing our national song at international sporting events. Is this a good use of our money?
No doubt you can think of other areas where government subsidies are necessary to maintain the activity, and whether or not that is an appropriate use of taxpayer funds is always a matter for debate.
The same applies to rental property investors. Here we have a situation where many rental property owners rely on the support of taxpayer funds through tax advantages from negative gearing. These tax benefits are factored into the decisions that the investors make in assessing the risk of the investment. What do we (as the taxpaying public) get for this level of government subsidy?
The obvious answer is a large number of accommodation units for Australians who, for various reasons, do not own their own homes. The alternative is for the government to provide the housing (and I would suggest that the government would be a very bad landlord!). It is doubtful whether the government would be able to provide the same volume of housing by diverting the current subsidy to the acquisition of rental properties.
Unfortunately, whenever the subject of tax or economic reform is mentioned, negative gearing is almost inevitably cast as a blight on society. The social benefits of providing housing are quite clear, and the right of all property investors to engage in this legitimate business activity cannot be denied.
Any business owner is able to deduct all legal expenses incurred in earning income, so I always struggle to understand why the rules should be different if you are running a business of renting a property.
By all means, if we need to change the rules, the rules should change for everyone – not just a particular class of investment. Subsidising manufacturing jobs or athletic prowess should also be on the agenda.
What do you think?