Government rules out changes to negative gearing

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THE government has ruled out any changes to negative gearing today, putting home ownership front and centre of the upcoming election.

The decision to leave negative gearing untouched in the May 3 budget is at odds with Labors pledge to axe the measure for all but new homes.

Prime Minister Malcolm Turnbull said that Labors reckless changes would reduce property values.

However, Labor has hit back saying the current tax system is a rort benefiting rich property owners at the expense of people on low incomes.

Negative gearing is a form of financial leverage where if the gross income you earn from an investment property is less than the cost of owning and managing the property, those losses are then tax-deductible against other taxable personal income.

So, basically, if your property costs you more than it makes you can claim a tax deduction.

Mr Turnbull claimed Australians would be gambling the future value of their home if Labor leader Bill Shorten moves into the Lodge.

Labors reckless changes will reduce property values. Theyll devalue every home, every property in Australia.

Its an extraordinary trifecta of outcomes that the Labor Party is proposing. Theyre going to drive down home values, drive up rents and discourage investment and thats why we wont have a bar of it, Mr Turnbull told reporters on Sunday.

The commitment comes as Labor and the Coalition draw level in the polls on the two-party vote.

On Sunday morning, Minister Michaelia Cash said Labors proposal was effectively a new tax.

When you look at where housing prices are currently in Australia, I dont think its the right time to touch negative gearing, she told Sky News.

We are not going to put a tax on housing ... we are not touching negative gearing.

Labors proposal would see negative gearing axed for existing properties from 2017 but would leave current investors unaffected.

Once the changes came into effect, new investors would only be able to claim negative gearing on new build properties with the aim begin to increase the overall housing stock.

Labor senator Sam Dastyari said the way negative gearing is currently structured is destroying housing affordability.

Speaking on Sunday morning, Dastyari said the Prime Minister gets more tax breaks for having seven properties than a young person trying to get his or her first.

There is a generation of people being priced out (of the market), he told ABC television.

Youve got to make sure youve got a tax system that is actually working for people and the current tax system isnt. The current tax system is a rort.

Opposition finance spokesman Tony Burke said Turnbull was proposing that the second or third homebuyer should get more assistance than the first.

Hes arguing that by protecting the tax concession, thats justification for cutting the local school, slashing Medicare, he told ABC television.