From the prime minister down, the Turnbull government is still insisting tax breaks for property investors don’t just benefit the wealthy.
An analysis by the Grattan Institute shows the top 10 per cent of income earners receive almost 50 per cent of the tax benefits of negative gearing.
Malcolm Turnbull was quick to dismiss the analysis, saying it was littered with factually-incorrect statements.
“Its economic analysis in many places leaves a lot to be desired,” the prime minister wrote in a blog on his website on Tuesday.
Mr Turnbull argues limiting negative gearing to newly-constructed homes – as Labor is proposing – will reduce investor demand and lower property prices.
Treasurer Scott Morrison also rejects the institute’s findings, citing figures that showed two-out-of-three Australians who used the tax break had a taxable income of $80,000 or less.
“I know it’s the popular consensus among some … that this is some big rort for big high-income earners. That’s a complete and utter myth,” he told ABC radio.
Grattan Institute chief executive John Daley says Australia’s version of negative gearing, with the 50 per cent capital gains tax discount, costs the public purse $11 billion a year.
That could be cut in half through a phased winding back of the capital gains discount and negative gearing over a 10-year period, raising $5.3 billion in additional revenue each year.
Mr Daley said people were being overly compensated for inflation with the 50 per cent CGT discount and a reduction to 25 per cent in stages would raise $3.7 billion a year.
Limiting the losses from negative gearing to offset gains from other investments and not wages, would raise $2 billion a year in the short term, falling to $1.6 billion when the change is fully implemented.
The proposed changes would improve housing affordability a little, with house prices easing by no more than two per cent and rents not changing much, Mr Daly said.
He thinks Labor’s proposal to limit negative gearing to new property while allowing people already holding negatively-geared properties to continue – so-called grandfathering – will just add to distortions and complexities in the tax system.
But he is pleased that one side of politics is prepared to talk about changing negative gearing.
“I am pleasantly surprised that a political party in Australia has had the courage to have a go at negative gearing,” he told AAP.
Shadow treasurer Chris Bowen can’t believe the government is still denying negative gearing benefits high-income earners.
“They are squibbing it and engaging in cheap, dirty, Tony Abbott-style scare campaigns at the expense of good policy,” he told Sky News.
The coalition has ruled out any changes to negative gearing as part of the government’s tax reform package to be released with next Tuesday’s budget.