The myth of negative gearing: Who it really helps and who it doesn't

Should negative gearing be scrapped? It's the political question that refuses to fade. But before we answer, we need to ask a better one: who actually relies on it, and who doesn't? The answer might surprise you, because it's not who the headlines say it is. 

As two of Australia's most experienced property commentators and educators, we've spent decades helping Australians cut through the noise and focus on what drives long-term financial success. And when it comes to negative gearing, one of the most debated features of our tax system, much of the public conversation misses the point. 

Politicians argue about scrapping it. Headlines pit investors against first-home buyers. Voters are left wondering: who really benefits? Is it a loophole for the rich, or a fair mechanism supporting everyday Australians? 

The answer, as always, requires a closer look at the fundamentals. 

What negative gearing actually is 

Negative gearing occurs when the costs of holding an investment property, including mortgage interest, maintenance and property management, exceed the rent received. That shortfall can be offset against other taxable income, reducing your tax bill. 

But here's the first myth to bust: negative gearing is not a strategy. It's simply a tax outcome. You don't invest in property to lose money upfront. You invest because long-term capital growth and future rents outweigh short-term losses. 

The real game plan is to move from negatively to neutrally geared, and eventually positively geared, when the property pays you income. At that stage, investors pay tax on rental profits, contributing back to the system. 

Who uses negative gearing? 

A common misconception is that negative gearing only helps wealthy professionals such as doctors, lawyers and executives. The reality is very different. 

According to ATO data, most of Australia's 2.26 million property investors are everyday workers such as teachers, nurses, police, tradies, truck drivers, carers and retail managers. They're not chasing luxury lifestyles or billion-dollar portfolios. Most stop at just one property. Their goal is simple: to self-fund retirement and avoid relying solely on the age pension. 

This sits in stark contrast to how negative gearing is often portrayed. The Australian Council of Trade Unions recently proposed capping negative gearing to one property per investor, arguing it would "restore fairness."  

Meanwhile, the 2024-25 Budget revealed that negative gearing and capital gains tax concessions will cost the government nearly $50 billion this year alone, a figure critics have called a "noose" around the nation's fiscal neck. 

So, when the political debate frames negative gearing as a rort for the wealthy, it ignores that the backbone of the investor community is middle-income Australians striving for financial peace. 

The case for retaining negative gearing 

From a policy standpoint, negative gearing plays two roles: 

1. Easing entry into investing: By offsetting early losses, it makes property investment accessible to people who otherwise couldn't bridge the cashflow gap. Without it, fewer rental properties would be available, and rents would likely rise. 
2. Encouraging supply of rental housing: Private investors provide over 90% of rental accommodation in Australia. Curtailing incentives risks reducing supply when vacancy rates are already at record lows. 

But this doesn't make negative gearing the "secret sauce" to wealth creation. It's a stepping stone: useful at the start, but not the end goal. 

The risks and limitations 

Like all tools, negative gearing carries risks. It assumes property values rise over time, which history suggests but never guarantees. It also requires investors to absorb short-term losses, sustainable only with strong buffers, cashflow management and a clear long-term plan. 

Where many come unstuck is mistaking tax benefits for strategy. If the only reason you buy property is to save on tax, you're already on the wrong path. The fundamentals, quality asset selection, strategic borrowing, disciplined money management and protection, are what drive success. 

The bigger picture: Financial peace, not tax breaks 

At its core, negative gearing should be seen as a temporary feature of a larger wealth-building journey. The ultimate destination isn't a tax deduction, but financial peace: owning quality assets that generate passive income for life. 

True wealth isn't about climbing someone else's ladder. It's about building your own "lifestyle by design," where investments serve your values and freedom, not the other way around. So, who does negative gearing really help? 

 It helps everyday Australians get a foot on the investment ladder. It helps stabilise rental supply in a market under pressure. But it doesn't guarantee wealth and it doesn't replace the need for strategy. 

Still, as polling and policy reviews show, the debate is far from settled. With nearly $180 billion in projected tax concessions over the next decade, negative gearing will remain a flashpoint. The challenge is balancing affordability for first-home buyers with the need for investors to supply rental housing. 

Scrapping it could punish hard-working, middle-income earners such as teachers, nurses and tradies who are striving for independence. But elevating it as the holy grail is equally misleading. 

The truth lies in the middle: negative gearing is a tool, not a magic bullet. Long-term wealth comes from mastering fundamentals, staying the course and remembering that financial peace is the ultimate goal.