Forget about the renewed hue and cry about negative gearing.

If the country wants a tax system that works, doesn’t distort investment decisions and could take some heat out of the property market, start with the concessional system of capital gains tax.

Forget the argument over negative gearing. The capital gains tax concession needs change.Credit:

The concession, put in place by Peter Costello in 1999, has become one of the key – if little debated – factors in the debate about property.

Paul Keating introduced the nation’s first capital gains tax in 1985 as part of a suite of measures that helped reduce the then-high rates of personal income tax on all working Australians.

Despite the Liberal Party vowing to repeal the tax at the 1987 election, it came to accept it as part of the tax system. But a Costello-commissioned review into business taxation argued that a tweak to capital gains would draw investment into the nation’s businesses via the share market.

By halving the rate of capital gains, it was expected to deliver a surge in productivity-enhancing investment. Instead, the cash flooded into the property market, supercharging price increases that have pushed every Australian capital city into the top 20 least affordable cities on the planet.

A landlord who lost money on their rental properties, thereby reducing their overall taxable income, could make up that loss by the concessional taxed capital gain that would come when they sold their investment.

This concession is now costing........

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