Mr Phillips said imposing the cap would raise an extra $1 billion a year, which is less than what would be raised under Labor's plan to restrict negative gearing to new property and reduce the capital gains tax discount to 25 per cent.​

There has been speculation the Turnbull government will trim the "excesses" of negative gearing by limiting annual claims to $20,000 a year.

Mr Turnbull has described the Labor' policy as a "soak the rich, politics of envy policy".

If an investor's rental expenses - including mortgage interest - exceed gross rental income, they have a net loss. This loss can be claimed against other income to reduce the investor's overall tax bill.

In the 2012-13 tax year, the latest figures available, around 1.2 million people had negatively geared investment properties.

Around 330,000 taxpayers included capital gains in their taxable income, where a 50 per cent discount was applied.

Labor has not released modelling for its proposal, which Chris Bowen says will save $7 billion a year by the end of the the policy's first decade in operation.

Mr Philips estimates Labor's policy will save the government somewhere between $3.4 billion and $3.9 billion per year over the longer term in 2017-18 dollars.


This is based on the expectation that the share of the market given over to new housing increases to between 10 per cent and 20 per cent over time, which Mr Phillips described as conservative.

To figure out the overall saving, Mr Phillips projected the tax breaks associated with negative gearing out to 2017-18, which is when Labor's policy would kick in.

"The distribution of rental losses expected for 2017-18 show that the typical losses are $5,600 per year but the top 10 per cent (this percentage refers to the most negatively geared, not income distribution or wealth) are losing $20,600 per year and the top 5 per cent lose $29,300 each year," Mr Phillips said in a recently released analysis.

He then examines tax savings, which is the outcome for an investor after deductions are claimed.

"The typical tax savings for negatively geared individuals is $1800 per year but the top 10 cent save at least $8000 per year and the top 5 per cent save $11,800," he says.

Capping rental losses at $20,000 in 2017-18 would impact only around 10 per cent of negatively geared investors but increase tax revenue by around $1 billion each year.

Capping losses at $50,000 would yield $300 million in extra taxation revenue.

As the Financial Review reported on Tuesday, Grattan Institute chief executive John Daley said capping negative gearing at $20,000 would hit 138,000 taxpayers. He agreed it would raise about $1 billion a year.


A $50,000 limit would hurt 18,000 taxpayers and generate only $300 million a year, he said.

"That's milkshake territory," Mr Daley said, adding that his figures are based on the policy being applied retrospectively to all taxpayers.

He also estimates that for someone to be generating a negative gearing loss of $20,000, they'd need to be sitting on around $2 million of property.

"It's tough to imagine people with $2 million in property are on the breadline," he said.