In light of reports the Albanese government may curb negative gearing and capital gains tax concessions, it’s worth reflecting on the problem we are trying to solve. This is especially true given negative gearing is among the most misunderstood features of our tax system. It is widely perceived as a tax rort that has blown up our housing market. The objective truth is it is nothing of the sort.

So what is the problem?

Negative gearing can be a gambleCredit: Simon Letch

In addition to taxing wages, governments also tax investment returns. Most cash returns are taxed at the same rate as wages — this includes interest and dividend income or rent from an investment property.

Some returns are taxed less — for instance, super returns are taxed at 15 per cent. And the return we receive because an investment rises in value (the capital gain) is also taxed at a lower rate — for most investments, at half the rate on wages. And we pay no tax at all on the capital gain on the family home. And on it goes.

What should be clear is that the tax you pay depends wildly on how you choose to invest. On the face of it, this is bad policy, distorting investment decisions, raising the prices of some assets and........

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