An incentive is something that motivates an individual to perform an action.

In a free enterprise economy such as Australia the power of incentives to stimulate entrepreneurial activities is crucial. We all seek to maximize our satisfaction with our given level of resources (income) and the possibility of reward motivates us to work efficiently and productively.

Price is the most easily recognized incentive. As prices fall it acts as an incentive for consumer to demand and buy more, as prices rise it encourages supply.

Incentives are however both monetary and non monetary and there are also disincentives at work in our quest to maximize our satisfaction and well being.

The decision to invest requires that we choose to refrain from current consumption (save) and redirect some of our disposable income into shifting our own production possibility curve out to the right. The incentive to “delay gratification” now, is the remunerative reward in the future in the form of wealth but also a natural incentive to seek security and comfort and freedom from financial stress.

Tax breaks for property investors are government incentives designed to improve the allocation of resources and maximize the satisfaction of the need for housing. Individual incentivization is a powerful tool in a modified free enterprise economy, encouraging the provision of goods and services more efficiently than government can.

Of course there are also coercive disincentives used by government too! We all have to operate within the rule of law or pay the ‘price’!

In this lesson we will look at the incentives in place to invest in property. We will examine the individual incentives which are both monetary and natural and the incentives provided by government via the taxation system.