Negative gearing is back in the news. But reports that Treasury is modelling changes shouldn’t be a surprise, or something the government feels it needs to hide. The government and the bureaucracy should always be looking at economic reform opportunities, including how to improve our tax system.

Australia’s negative gearing rules (which allow people who borrow to invest in housing and use their losses to reduce tax on wages and salaries) are neither natural nor sacred. They go beyond the broadly accepted principle of offsetting investment losses against investment gains.

Just 18 per cent of lending to housing investors was for the construction of dwellings or for newly built dwellings.Credit: Louie Douvis

And the discount on capital gains tax that operates alongside negative gearing is only 25 years old. In fact, the number of Australians with negatively geared residential property investments only took off when the capital gains discount was changed in 1999 from taxing all real gains to taxing half of nominal gains.

These tax concessions – which are a form of expenditure from the public purse – now cost Australians billions of dollars each year. We should be asking if that is money well spent. What policy purpose are these measures serving and how well are they doing it?

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