With all the campaign fuss about the Reserve Bank note on negative gearing, you would think it revealed something new. But anyone listening would know they've long warned of the financial risks in the housing market caused by our policies, writes Michael Janda.

The Reserve Bank's unease about negative gearing and the capital gains tax discount is long-standing, as is only to be expected for a policy combination that most independent economists regard as a dog.

Debate about Labor's plan to wind back negative gearing and the capital gains tax discount reignited yesterday with an RBA internal briefing note that suggested such a move might be good for financial stability.

Labor seized on the note as support of its policy to restrict negative gearing to newly built properties from July next year, while grandfathering existing investors from the change.

The Government promptly hit back describing it as "an old document", "an internal document" and "not an official position of the RBA".

No doubt it's true that this particular document isn't representative of an "official" position.

But let's face it, what's an "official" position worth? They're often watered down and self-censored so as not to offend the powers that be or to scare (or inform) the public.

More important in this case is that the note isn't some out of the blue one-off for the RBA.

It does actually reflect an "official" position that the Reserve Bank has held for a long time, which is that the combination of negative gearing and the 50 per cent capital gains tax discount introduced by Peter Costello in 1999 is likely to have created financial risks in the housing market that wouldn't otherwise be there.

The RBA said so last year in an official submission to a home ownership inquiry conducted by the House of Representatives Economics Committee.

Financial stability considerations would suggest that tax and regulatory frameworks should avoid encouraging over-leveraging into property, whether by owner-occupiers or investors.

And it wasn't exactly a shrinking violet about what "tax and regulatory frameworks" it had in mind.

The bank believes that there is a case for reviewing negative gearing, but not in isolation.

The RBA highlighted "in particular" the 1999 changes to capital gains tax as an area that should be reviewed along with negative gearing.

Sounds like the Labor members of that committee were listening.

Indeed, the ALP is a bit late to the party.

This is what Reserve Bank assistant governor Malcolm Edey said in response to a question from Senator Nick Xenophon during a Senate inquiry into affordable housing in 2014.

We made some extensive comments on the tax treatment of housing 10 years ago, and our general position has not really changed. If you have a tax system that excessively favours leveraged investor activity then that is going to cause distortions in the market.

So what did the bank say all the way back in 2003, when we were at the tail end of the last big Sydney property price boom that had the pollies in a tizz about housing affordability for first home buyers?

"The taxation arrangements in Australia are more favourable to investors in residential property than are the arrangements in other countries studied in preparing this submission," it observed dryly, then under the leadership of governor Ian Macfarlane.

But here's where it diverges from Labor's policy proposal, and appears to lean more towards something I suggested around this time last year.

The RBA concluded that it did not "see a case for the outright prohibition on negative gearing for investment in residential property."

We wish to make it clear that we are not challenging the validity of the concept of negative gearing, whereby losses on one economic activity - in this case, being a landlord - can be offset against a person's principal source of income.

But that didn't mean it thought the taxation system then, which is pretty much the same as what we have now, didn't need improvement.

The three areas the RBA suggested for investigation were:

1. The ability of investors to negatively gear a property for many years, potentially indefinitely; 2. Generous depreciation allowances in Australia relative to many other countries; and, 3. The mismatch between interest and depreciation deductions reducing income tax at your marginal rate, while the capital gains tax payoff later is taxed at half that rate.

It is the third of those points that results in property investment being viewed, marketed and used as a legal form of tax avoidance, a point Malcolm Turnbull himself made back in 2005.

A savvy and economically sound approach from the Government to Labor's negative gearing/CGT roll-back would've been to adopt the CGT component and reject the negative gearing aspect.

Such a move would have fit with the advice the Reserve Bank's been offering for more than a decade, and pleasantly surprised and placated the raft of independent economists and property market researchers demanding change from the status quo.

It would've allowed the Government to run on the line that it was leaving negative gearing untouched, yet it would have dramatically narrowed the scope of negative gearing being used in conjunction with the CGT discount for tax minimisation.

It also would have saved the Government at least $2-3 billion a year.

But maybe such a move was a little too bipartisan for the current political environment, where no party wants to be seen as adopting any good ideas from the other.

Plus it would've made running a scare campaign on supposed rent rises and a simultaneous housing market crash a little harder - although in economic terms, such a campaign is already untenable, as the Government is rapidly finding out.

They say the perfect is the enemy of the good. In Australia you could easily add that politics has become the enemy of reason.

Michael Janda is an online business reporter with the ABC.