Labor says Treasury documents prove government claims were 'outright lies'

File image: Shadow Treasurer Chris Bowen (left) and Leader of the Opposition Bill Shorten Source: AAP

Treasury documents have emerged that contradict the Turnbull government's attack on Labor's negative gearing policy.

Federal Labor has seized on the release of Treasury documents stating its policy to tighten tax breaks for property investors would have a relatively small impact on house prices.

The 2016 documents obtained by the ABC and released under Freedom of Information, contradict the Turnbull government's claim the negative gearing changes would be a "sledgehammer" to Australia's economy.

Shadow Treasurer Chris Bowen said the document exposed the government's attack on Labor's housing affordability policies "as little more than outright lies".

He accuses Treasurer Scott Morrison of choosing to "selectively leak Treasury advice when it suits him", claiming this is the reason why the document has only been made public now.

The document cites changes to negative gearing in the 1980s, as well as the introduction of the capital gains tax discount in the 1990s, as having “little discernible impact on the market”.

Negative gearing allows many property investors to use their losses to reduce their tax bill. Under the capital gains tax, generally half the profits from the sale of an investment property are untaxed.

Mr Bowen adds that the document confirms distributional modelling done by Labor, showing that more than 50 per cent of the benefits of negative gearing go to the top 20 per cent of incomes, while the top 10 per cent receive nearly 75 per cent of the capital gains tax discount.

The policy was a hot button issue during the 2016 election campaign.

During the campaign, the ALP had proposed restricting negative gearing to new homes only, and halving the capital gains tax discount to 25 per cent.

"The likes of Malcolm Turnbull, Scott Morrison and Peter Dutton still chose to dial up the political rhetoric in a poor attempt at a scare campaign," Mr Bowen said.

The documents state that Labor's policies could introduce some downward pressure on property prices in the short term, particularly if the commencement of the plan coincides with a weaker housing market.

"Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors," Treasury officials wrote.

Asked if the Turnbull government had lied about the impact of Labor's policy, Liberal frontbencher Simon Birmingham said, "Absolutely not".

"It's a two-year-old analysis; it shows indeed, there would be downward pressure, which is exactly what the government has been saying all along," Senator Birmingham told ABC Radio.

Acting Treasurer Kelly O’Dwyer maintains the document corresponds with the government’s stance on the issue.

"Treasury's advice confirms what we have been saying all along — that if you increase capital gains tax by 50 per cent, if you remove negative gearing, it would have a disastrous impact when combined with weakness in the housing market," she told ABC Radio.

“What would it [changing the policy] do to confidence, consumer spending, growth and employment?”

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