The Reserve Bank of Australia has faced off against the Abbott Government’s support of negative gearing.
The RBA said this week that there was a case to review negative gearing and the way it interacts with the tax system.
In their submission to an inquiry into housing affordability, the RBA said the negative gearing system encouraged Australians to borrow for property at a cost to the economy as a whole.
The submission said deducting expenses for earning an income was an important principle but there were problems as investors lost billions of dollars through interest on rental properties.
“The switch in 1999 from calculating capital gains tax at the full marginal rate on the real gain to calculating it as half the taxpayer’s marginal rate on the nominal gain resulted in capital gain-producing assets being more attractive than income producing assets for some combinations of tax rates, gross returns and inflation,” it said.
The RBA also said the increasing number of people borrowing on their superannuation was risky to the whole financial system and should be reined in.
Treasurer Joe Hockey said he does not support changing negative gearing, arguing claiming costs against income also applies to other investments.
The submission comes after the Grattan Institute this week also called for tax reform in the property sector, calling for a new property levy to replace stamp duty.