Opposition Leader Bill Shorten says the present tax system distorts the housing market and is why he wants to rein back negative gearing.
Opposition Leader Bill Shorten has hit back at detractors to Labor's negative gearing plans, saying distortions in the housing market already exist under the taxation system.
Prime Minister Malcolm Turnbull, while touring Townsville, slammed the opposition's plan to limit negative gearing to new properties, saying it is badly designed, risks distorting the market and doesn't address the big budget deficit problem that Labor created.
"Why is it that Mr Turnbull will fight so hard for a system where it's a battle, an expensive battle to get your first house, where Malcolm Turnbull will give you a tax deduction for your fourth house," Mr Shorten told reporters in Melbourne on Monday.
Treasurer Scott Morrison also took aim at his Labor counterpart Chris Bowen, saying he thinks everyone who is on negative gearing is on a rort.
"He thinks they are big property barons, he's going to tax them and slam them," Mr Morrison said.
But Mr Bowen insists limiting negative gearing to investment in new properties from mid-2017 would promote a level playing field for new home buyers.
Along with cutting the capital gains tax discount to 25 per cent from 50 per cent, it will save the budget $32.1 billion over 10 years, although only just over $500 million over the four-year budget estimates.
"A first-home buyer turns up at an auction with very little government support ... while an investor turns up at an auction with the most generous tax treatment in property investment in the world," Mr Bowen told ABC TV.
These measures would improve the budget bottom line by increasing over time and were aimed to protect investors who already had negatively geared property.
Business consultants Pitcher Partners Sydney believe negative gearing reform is absolutely essential, with existing policy causing a large misallocation of resources to a sector which is relatively unproductive other than providing shelter.
"The by-product of this flawed policy is inflated house prices and high household debt. High household debt constrains consumption and puts at risk the growth potential of the economy," its wealth management partner Martin Fowler said in a statement.
Last week Treasury released modelling that showed a much-debated rise in the GST would provide only a limited lift to the economy.
BDO national tax director Lance Cunningham said independently releasing modelling confirms that proper white paper reform process is now dead.
"The hopes we had for meaningful tax reform have now been dashed and have once again been replaced with the kind of piecemeal approach to tax we have seen for over a decade," he said in a statement.
But Australian Chamber of Commerce and Industry chief executive Kate Carnell said the government must not be "let off the hook".
"Tax reform is essential to stimulate growth in Australia," she told reporters in Canberra.