It is evident from Saul Eslake's figures that the Capital Gains Tax changes implemented by the Howard government turbo-charged the application of negative gearing to the housing sector.

The toxic mix of the two on our housing market and taxation system surely means at least one of them has to go.

The question might then become; Is negative gearing on housing acceptable as a part of the taxation regime without the 50% CGT concessions?

Given the large support for progressive taxation, even among economists (81% in the US, sorry Peter, debate on its merits probably needs its own thread) the following question would be; Which of the two, NG or CGT concessions, is more corrosive to that ethic?

In an earlier thread Saul explained “In the United States, for example, investors in rental property (or indeed in any other asset) can only claim interest expenses as a tax deduction in any given year up to the level of income generated by it (in the case of an investment property, rent net of expenses); any excess has to be 'carried forward' against the capital gains tax liability crystallized when the asset is sold.”

At Jan 1990 less than one in every seven dollars on loan by the banks for houses was to investors. By Jan 1998 it was one in four. After the CGT amendments in 1999 the free-fall continued. By Jan 2004 it was more than one in every three. It was only after the 2007 crash that the trend reversed slightly and the ratio currently sits at one dollar for every $3.25 loaned. Is this really what we want for our country?

All governments during that period have espoused their policies for helping Australians into home ownership, via schemes such as the First Home Owners Grants. It is plain to see these efforts have had little chance against the perfect storm of NG and CGT concessions.

In my opinion, given the figures, both should be abolished and we take the money saved to address our chronic shortage of affordable community housing stock.

If you buy any other major investment for business purposes, negative gearing is standard practise, why should housing differ?

it's been attempted before during the Hawke Gov't I think but did not succeed, and it would be a brave government which could pull that off. It's classic middle class welfare, with the renting class being held hostage by landlords. Cui bono?

In response to "Shadow Minister"'s question, let me reiterate the point which "csteele" quoted for an earlier thread - that interest on borrowings undertaken to finance an investment should be deductible, in any given financial year, ONLY against the assessable income which that investment has produced, with any excess carried forward as a deduction against the ultimate capital gains tax liability, and should not be capable of being used to reduce tax on other income which would otherwise be taxed at a higher rate, in the year in which it was earned. I think it is unreasonable and inequitable for interest incurred on an investment to be deductible at a higher rate than that at which the income produced by an investment is taxable.

Incorporated businesses can of course claim interest expense as a tax deduction, and I am not challenging that. But corporate interest expenses are deductible at the same rate as that at which corporate profits are taxed. And (as I understand it) the owner(s) of a company which makes a loss because interest expense exceeds all other net income can not use that loss to reduce the tax payable on the profits made by another company which they may own. So "shadowminister"'s analogy is misplaced.

I am not sure I fully understand the point "rehctub" (butcher backwards?) is trying to make. However I would point out that the vast majority of properties bought by "negatively geared" investors are established dwellings, not new ones: ie, "negative gearing" does not do anything to increase the supply of new housing (and thus to reduce the housing shortage), any more than the First Home Owneers' Grant does; rather, the primary effect of both is to push up the price of established housing (by allowing those who benefit from either arrangement to pay more for the dwellings they buy than they would otherwise).

I have been waiting for some years to see some indication of intelligence and integrity from the both parties, but it has been in vain. All I can see is stupidity and possibility corruption. The consistent insistence of Wayne Swan and the team to continue with this low top personal tax and low corporate tax has been destroying the economy for the last forty or so years, and was shown by the dive into the “recession we had to have” with Paul Keating about 1985. It has been followed by recessions by John Howard and Peter Costello in the '90's etc, and by Wayne Swan several times since his term as treasurer. Both the parties – Liberal and Labor have been quick to claim “Global economy” for their incompetence, inability to even recognise what and where the problem is, even though Wayne has been told several times. The Global warming issue, is another instance where even if it is actual, I cannot see where the tax intended to be applied, is going to affect any improvement at all, maybe one of your “intelligent” gang can advise me and the rest of Australia. Admittedly, the Liberal party seems to be equally ignorant of the necessities to return Australia to an economical success. We can no longer live in this hopeless tangle of stupidity, and have to look forward for a party with intelligence and integrity, and allegiance to Australia and our people. The obsession of both parties in the export of our non-renewable, non-value added resources with the reciprocal imports of all the goods we used to manufacture in Australia, clothing, tools, cars, even trains, shows that these incompetents are wholly determined in destroying the economy and whatever else still exists in our country. As you might get from this message, I and most likely many more will not be voting any more for either the Labor or the Liberal parties in future elections. I have to wonder how a gang of so called professionals can be so stupid or is it corrupt, maybe it is something they are ingesting.

Merv09 you are right.There is gross corruption and stupidity.Our pollies are selected by the Corporate elites not for their intelligence but their malleability.

see http://www.secretofoz.com/ L Frank Baum in 'The Wizard of Oz' had deep economic meaning for us all.'Secret of Oz' by Bill Still last yr won the Biff International award for best documentary.It looks at the history of money from Roman times to the present and the realistic solutions.