How the most affluent Australians disproportionately benefit from negative gearing

Negative gearing helps high-earning Australians the most, with those with income of more than $180,000 annually snaring almost one-quarter of the benefits, despite numbering just 5% of taxpayers.

Data from the Australian Taxation Office showed people who earn more than $180,000 were able to lower their collective tax bill by $1.3bn in 2021-2022 through negative gearing. The $1.3bn was roughly 25% of all the losses on rental properties claimed by taxpayers in that financial year.

Australians earning $1m or more recorded the largest loss per person, each claiming an average of $28,642 off their tax bills.

Those negatively gearing their investment properties on average own 1.4 dwellings each, with just over 1.3m rentals making a loss.

Related: What’s really going on with negative gearing? Here are four paths for change

The negative gearing and capital gains tax debate has flared up following reports the Albanese government asked Treasury to undertake modelling on reducing the tax concession.

Negative gearing allows investors to deduct losses from investment properties – that is, if their expenses exceed the rent collected from the home – from other taxable income, reducing their tax bill in the process.

Critics say the benefit stokes housing demand, raising prices for all. Supporters say the sector gets more investment than it otherwise would, making it more attactrive for builders and increasing the supply of rental properties.

Prominent independent economist Saul Eslake said negative gearing is “disproportionately” used by people in the top income bracket, not regular “mums and dads” as is often touted by the property industry.

“Someone who’s in the top tax bracket is more than three times as likely to be a negatively geared property investor as someone who isn’t,” he said.

Eslake pointed to the temporary abolishment of negative gearing between 1985 and 1987. Then, rents dropped around the country except in Sydney and Perth, providing proof its cessation would aid Australia’s affordability issues.

While investor groups argue they are helping supply issues by buying homes to rent out, were investors to sell an established rental to an owner-occupier, the effect on supply would be similar , Eslake said.

“While the supply of rental housing might then fall, the demand for rental housing would fall by an equal amount, and there would therefore be no impact on rents at all,” he said.

“If there wasn’t negative gearing, I wouldn’t be in property.”

Michael Shears owns two properties and has negatively geared both.

“I built both of them, and I’ve now got loans for them,” he said. “The only thing that makes it attractive is the negative gearing.”

Because he has built the two homes, Shears argued he has added to stock. It’s a different story, he said, if someone buys an existing home.

“I get that [in the case of] an established house on the market, you’ve got landlords competing against people who want to buy to live in that house.

“So if you could take landlords out of that established property market it would help homebuyers.”

Shears said if the government changed regulations on buying established property, then purchasing through trust and superannuation funds should also be further regulated.

He said a housing scheme, where tenants on lower wages can rent to buy, would make good sense.

“The government’s got to do something to help tenants to get into property easier,” he said.

Australia’s housing affordability has hit its worst since records began in 1995, with a median-income family earning about $112,000 able to afford just 14% of homes sold in the last financial year.