(Transcript from World News Radio)
The Reserve Bank of Australia wants the government to review negative gearing, saying it may be pushing property prices up.
In its submission to a parliamentary inquiry into housing ownership, the RBA says the way the tax incentive interacts with other aspects of the tax system should be reviewed.
As Amanda Cavill reports, the central bank has added its voices to others already calling for changes to the tax break for investors.
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The Reserve Bank of Australia has entered the debate over tax concessions for property investors.
Negative gearing is a tax deduction claimed on an investment asset which doesn't receive enough income to cover the interest expenses and other maintenance costs.
The Bank says it believes there is a case for reviewing negative gearing, but not in isolation.
In its submission to a parliamentary inquiry into housing ownership, the RBA says the tax break should be looked at in terms of its interaction with other aspects of the tax system.
But Treasurer Joe Hockey is urging caution.
Mr Hockey says people think of negative gearing as only applying to real estate but it also applies to shares and a number of business expenses.
He says individuals should be able to deduct their business expenses against their primary income and if negative gearing is changed or abolished, it could affect this.
"Now, the question is: do you address the issue of negative gearing on that million-dollar property, or do you address the negative gearing on the business? Our view is, in relation to negative gearing, that individuals should be able - and it's a common practice worldwide - individuals should be able to deduct the expenses of a business or an investment against their primary income."
Opposition Treasury spokesman Chris Bowen says the government needs to engage in proper policy development in relation to housing affordability.
Mr Bowen says he can't see either side of politics totally abolishing negative gearing but a review is neccesary.
"Well what we've said is we are going through the process of developing a housing affordability policy. We look at these measures through the prism of, not only the long-term sustainability of the Budget, but the social impacts of housing affordability. We have outlined two principles, one that existing investors should not be disadvantaged going forward and secondly we are recognising the fact that housing supply is the key: we need more housing supply across the country. They are the two principles which underpin our policy development."
The Greens want negative gearing scrapped on all new housing investments.
Deputy Greens Leader Scott Ludlam says 2.9-billion dollars could be saved within four years, which could then be invested in new housing.
Greens Senator Scott Ludlam has says years of generous subsidies to property investors has pushed up housing prices.
"Just in the next four years, we could save nearly three billion dollars by abolishing negative gearing on new investments so those who have already got their properties set up that way would be able to keep it, but we don't think it should continue into the future. That's three billion dollars we could spend on housing affordability and housing the homeless."
But Prime Minister Tony Abbott says changing negative gearing is not an option.
He recently told the Liberal State Council in Queensland that negative gearing helps ensure a secure rental housing supply.
"We're not going to fiddle with negative gearing because the last time a Labor government fiddled with negative gearing, it destroyed the rental market in most of our major cities."
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