Minggu, 05 Juli 2009

It's tax time

It's the new financial year, and the thoughts of many Brown Couch readers will turn to the task of completing their tax returns. Actually, such is the complexity of the Australian tax system that about 70 per cent of the population regard the task as altogether too hard and place it in the hands of a tax agent. But while our thoughts are on the topic, let's have a look at one of the by-products of tax time: the Australian Tax Office's annual Tax Stats report and, in particular, what it says about the affairs of the nation's landlords.

The Tax Stats for 2006-07 have been out for a couple of months now, but as far as I can tell their publication passed with nary a mention in the media. That's odd, because they make an interesting read – or even better, an interesting handful of charts – on the conduct of rental property investment in the last days of the boom.

First, the Tax Stats show that the number of landlords (measured by the number of persons declaring rental income) grew by almost 50 000 over 2006-07, to just over 1.6 million persons. As chart 1 shows, growing numbers of persons had been piling into the market for more than 10 years.



(Chart 1: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

And chart 2, below, shows the total gross rental income they enjoyed. Over the 12 years, it grew substantially, from just over $8 billion to almost $21 billion. No wonder so many people wanted to get into the market, right?



(Chart 2: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

Actually, no. In net terms, most landlords over the declared a loss in 2006-07 – in fact, 69 per cent of them. And the proportion of losers had grown over the preceding six years or so.


(Chart 3: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

The poor things. More than anything, the reason why these landlords lost money was because of their interest payments. In 2006-07, the nation's landlords paid more than $16 billion in interest on getting into the rental market, this amount having climbed steeply since 2001. (These payments are, of course, tax deductible – the magic of negative gearing.)


(Chart 4: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

So how did they do over all, in net terms? Chart 5, below, shows the sorry state of the rental business. The nation's landlords haven't collectively turned a buck since 2000-01, and 2006-07 plumbed a new low: total net rental losses of $6.4 billion.


(Chart 5: ATO, Tax Stats 1994-95 to 2006-07. Click on the image for a better view.)

And this is the system of housing investment that governments and the housing industry want to kick start again?

One of the objectives of Ken Henry's current review of Australia's tax system is to reduce the complexity of the tax system. That's the least it should do. Let's hope the Henry Review sets its sights higher and proposes to deal with the madness of a tax system that encourages house-price speculators to such profligate borrowing and unproductive 'investment'.