The losses do not last. Negative gearers expect to eventually sell their properties for profits big enough to wipe them out. But thanks to an expensive and unexpected decision of the Howard government in late 1999, only half of the eventual profits are taxed. That's right. Since the turn of this century, negative gearers have been able to cut their taxable incomes by 100 per cent of their annual losses, but have only had to boost their taxable incomes by 50 per cent of their eventual profits. It is as if our entire tax system has been "screaming at taxpayers to gear up to earn increased capital gains, rather than to work harder to earn increased wages," as an economist advised his clients at the time. Before the change, Australian landlords made money. In 1999-2000 they made a combined profit of $219 million. By the most recent year for which figures are available, 2011-12, they lost a combined $7.86 billion. But they're battlers, right? Morrison says 70 per cent of them earn $80,000 a year or less. But there's a trick: the figures he quotes come from the Property Council, which has sourced them from Tax Office data on "taxable incomes". Of course, negative gearers attempt to cut their taxable incomes to just below $80,000. Why wouldn't they? That is the point of the exercise. Anything above $80,000 faces a marginal tax rate of 37 cents in the dollar or more. Anything below faces 32.5 cents. A graph in the government's tax discussion paper shows an unusual bunching of taxable incomes just below $80,000.

Many manage to cut their taxable incomes much further. Astonishingly, one in every 12 tax filers reporting a taxable income of $10,000 or less claims a negative-gearing tax deduction. Given that no sane bank would lend to anyone whose income was really that low (especially for the purpose of losing money), it is a fair bet most earn much more. Many are retirees, whose income from superannuation isn't counted as taxable income. Some are on an awful lot more than $10,000 a year. The Tax Office stats show 75 of the taxpayers purporting to earn $10,000 or less actually pull in $250,000 or more. Five make $1 million or more. Of course negative gearers attempt to cut their taxable incomes to just below $80,000. Why wouldn’t they? That’s the point of the exercise. Reserve Bank calculations suggest the top 20 per cent of earners owe the bulk of investor housing debt (60 per cent). The bottom 20 per cent owe just 2 per cent.

It is disturbing that a government minister would prefer the assessment of the Property Council to that of the Reserve Bank - all the more so when that minister is in charge of social services, the department responsible for working out who really is a battler. It has its own way of dealing with negative gearers. It denies them deductions. For years now, it has told anyone who loses money on a rental property that their losses do not count for the purpose of assessing their income for family or childcare benefits. Michael Pascoe has reported in this paper that eligibility for the Medicare surcharge, the private health insurance rebate, the seniors tax offset and the requirement to repay higher education loans are all calculated without reference to losses incurred by negative gearing. The government acted on higher education loans soon after they were introduced. High-earning graduates were becoming property investors and running up losses in order to force their incomes down below the repayment threshold. All the Council of Social Service asked for this month was for that approach to be made universal. Labor opened the door a little when it said any changes would be taken to the next election and would not apply to people who had already invested. Then Morrison pounced. It was a pity. His colleague Joe Hockey had been musing along similar lines.

The ANU Tax and Transfer Policy Institute says dumping negative gearing could save up to $7 billion and fund "Reagan-style tax cuts". The US president Ronald Reagan moved against negative gearing in 1986. What do we get for it? Very few new homes. The more popular negative gearing has become, the less it has been used to build new homes and the more it has been used to bid up the price of existing ones. Back in the 1980s, every fifth new investor loan built a home. It is now every 15th. Peter Martin is economics editor of The Age. Twitter: @1petermartin