Australian property perks in crosshairs as boom locks out young buyers

Australian investors enjoy some of the most generous tax concessions in the world when they buy real estate. That could be about to change.

The opposition Labour Party is proposing scaling back tax breaks for landlords that have helped fuel a 50 per cent increase in property prices in capital cities since 2008. With an election just months away, the proposal has taken centre stage in the nation’s policy debate and is forcing Prime Minister Malcolm Turnbull’s government to give the perks a closer look as part of its review of the taxation system.

With A$6.4 trillion (HK$35.5 trillion) of Australians’ personal wealth in residential property -- almost half of the total -- tinkering with the tax breaks for property investment has been a no-go zone for policy makers. The issue risks stoking investor confusion and exacerbating a cooling in the property market.

“The groundswell has been shifting against the system because even people who have been helped by it are now realising it’s harming their kids’ chances to own their own home,” said Saul Eslake, an independent economist who has studied the Australian economy for more than three decades.

About 1.2 million Australians use so-called negative gearing, where they reduce their tax bill by deducting the costs of owning a rental property, including mortgage interest payments, from their taxable income.

Some countries including Britain and the US allow property investors to deduct costs from investment income; Australia is unusual because it allows the deduction against wages.