Finance probe backs calls to scrap negative gearing

THE Abbott Government’s financial system inquiry has bolstered calls for negative gearing to be abolished,

THE Abbott Government's financial system inquiry has bolstered calls for negative gearing to be abolished, saying the tax break encourages "leveraged and speculative investment".

A Senate inquiry into affordable housing underway has heard from many policy experts and economists calling for the tax break to be tightened or abandoned.

Negative gearing has been specifically criticised during the inquiry for preventing first home buyers entering the housing market, in favour of investors buying second, third and fourth properties.

While the government has indicated no plans to change negative gearing, the financial system inquiry report by David Murray has reinforced arguments against the tax break.

Mr Murray, a former Commonwealth Bank chief executive, wrote negative gearing in particular was a potential source of systemic risk to the entire economy.

However, the report made no specific recommendations on such policies, as they will instead be considered under the government's tax white paper due out next year.

The inquiry did recommend banks keep more capital in their coffers to prevent excess risk exposure; tightening rules and transparency in the financial advice sector and reviewing the new MySuper system.

Treasurer Joe Hockey said more than a quarter of the inquiry's recommendations would help create more competition, and a major focus was consumer protection, stemming from thousands of submissions on credit card surcharges.

Finance industry players and the public now have until March next year to read the report and respond in submissions to the government.