Cash back

I recently bought a new laser printer from Officeworks. It’s from Brother, and I picked it up for $99. Actually, it was $139 with a $40 “cash back” (and I’m still waiting for the cash back, to be completely honest).

Cash backs are a weaselly way of providing a discount. We all know that they are offered with the understanding that not all customers will be bothered to, or will remember about, getting their cash back. If they were genuine about the discount, they’d simply reduce the retail price.

In order to claim this one, I had to:

  1. Keep the receipt from Officeworks
  2. Make a photocopy of it
  3. Do a web search for “brother cash back” (no details were provided in store, on the receipt, or with the product on how to claim the cash back)
  4. Visit the right website
  5. Locate the serial number for the product (detailed instructions are provided on the website)
  6. Complete a claim form online, including specifying receipt number, serial number, and bank account details
  7. Get back a unique code, that had to be written on the back of the photocopied receipt, along with my name and address
  8. Post the photocopied receipt to the address specified (also requires a stamp)
  9. Wait

Not exactly trivial. At several points I wondered if it was worth bothering, but I obviously persevered. A straight-out discount would have been preferable.

Although, now I’m reconsidering. The practice of cash backs is a bit like a tax on the slack. The motivated get the discount, while the slack do not. If everyone was motivated enough to jump through the hoops the manufacturer has created, the amount they could provide in the cash back would be less. So, in a real sense, the difficulty of the cash back process results in a higher cash back amount for those willing to endure it.

I may end up quite happy once the payment has been received. However, The Age published an article today alerting readers to problems with HP’s cash back schemes. So, I wait, and hope that Brother’s process is less difficult than HP’s.

Why negative gearing is not going away

Attacking the practice of negative gearing appears to have become a bit of a sport lately. On the 14th March, an article in the Herald Sun stated the government “should look at ways to overhaul an extremely generous system of negative gearing”, and on the 20th March, The Age ran an opinion piece entitled “It’s time to apply the brakes to negative gearing”.

I could speculate that the attention property investors (and their tax deductions) is due to the combination of increasing rents (driven by low vacancy rates) and high property prices (driven by a long stint of housing affordability). However, the cause is not important, and what is important is understanding why negative gearing is an effective housing subsidy.

In the Taxation Statistics  2005-06 publication from the ATO, we can see that:

  • There were 1,561,630 people who declared rental income on their personal tax returns.
  • 66.5% of those had a taxable loss (net return income less than zero) from their rental properties.
  • There were 2,146,685 property schedules completed for those tax returns (note: where multiple people own a property, multiple schedules may be completed for those properties).

And in the Census 2006 QuickStats for Australia from the ABS, we can see that:

  • 27.2% of occupied private dwellings were rented, which corresponds to 2,063,947 dwellings. (Pretty close to the 2,146,685 figure above.)

While in the Australian Social Trends 2007 from the ABS:

  • There were 394,000 first home buyers in 2003-04.

So, from that barrage of stats, it should be clear that the number of renters outnumbers the first home buyers (in any one year) by over five to one, and the number of renters combined with the property investors outnumbers them over nine to one. Why compare with the first home buyers? Because they are really the only housing segment that is disadvantaged by negative gearing. Beneficiaries include renters, existing home owners, investors and the state governments (through higher land tax and stamp duty fees).

Renters have their rent subsided by the ATO, though the tax deduction on costs provided to their landlords. What other business but property rental is regularly undertaken at a loss? It should be admitted the “obvious” effect of removing the deduction – rising rents – is unproven.

I would expect it to be likely that rents would rise, both from scarcity due to fewer landlords willing to operate without such a deduction, and from those willing to be landlords increasing their rents to maintain their investment yields. However, back in 2003, the ANZ’s Saul Eslake analysed the last time negative gearing was removed (by Paul Keating, between 1985 and 1987) and commented that:

It’s true, according to Real Estate Institute data, that rents went up in Sydney and Perth. But the same data doesn’t show any discernable increase in the other State capitals. I would say that, if negative gearing had been responsible for a surge in rents, then you should have observed it everywhere, not just two capitals.

So history is inconclusive. And, rents aside, although you might think that renters would benefit from being able to escape the rental market, many of them don’t want to. A survey by AAMI published on the 3rd April indicated that 39% of renters are “happy to rent and have no plans to have a mortgage.”

Existing home owners benefit from rising house prices since while prices go up, their morgage does not. Although when they come to buy another house, they will need to pay higher prices, they will typically sell their old house into the same market. Also, at some point, they will exit the housing market, and benefit from selling their house without having to buy one.

And that brings us to the conclusion. The group of people able to remove negative gearing are democratically-elected politicians. It’s highly unlikely that such a person will remove a policy that benefits so many, particularly when it’s a Labor government and renters are one of groups that benefit. True, it was a Labor government that removed it last time, but that also means they will clearly remember the embarrassment of having to reinstate it.