But the analysis did strike a note of caution that the policy could put some "downward pressure" on house prices in the short term if its introduction coincided with a weaker housing market.

The document also showed the benefits of negative gearing and the CGT discount overwhelmingly flowed to high income earners, undermining the government's claim mum and dad investors would be hurt.

Treasury found 52.6 per cent of negative gearing benefits accrue to the richest 20 per cent of income earners. The top 10 per cent of high income families received almost three quarters of the benefits of the CGT discount.

Labor's policy is to limit negative gearing for investors to new housing stock, grandfathering existing investments. It will also halve the CGT discount from 50 per cent to 25 per cent for all assets held longer than 12 months.

Treasury estimated the negative gearing changes would increase revenue between $3.4 billion and $3.9 billion a year, while reducing the CGT discount would generate an extra $2 billion.

Property Council chief executive Ken Morrison warned Labor's planned fix was no solution to the housing affordability crisis.

"We question the point of a 'housing affordability' policy that does next to nothing to reduce house prices but risks an increase in rents," he said.

"There is scope for the capital gains tax discount to be reduced to 40 per cent but running the risk of higher rents from removing negative gearing without any significant fall in house prices is a gamble no government should take."


But shadow treasurer Chris Bowen said the analysis showed Labor's policy was good for housing affordability because it would take pressure off prices, change the mix of homebuyers away from investors to more first homeowners, raise billions of dollars for the budget and improve financial stability.

"I mean we have household debt amongst the highest in the OECD and while I'm always careful about my public comments and never alarmist: that is a concern... and the fact of the matter is that it's fuelled by the tax concessions in Australia and the current situation is unsustainable," he said.

"So that is why we will go to the next election with the same policy as the last election on negative gearing and CGT."

Mr Bowen aid the analysis showed the government's claim the changes would "smash" or take a "sledgehammer" to home values were "outright lies" and maintained they should still be introduced despite property prices flattening and in Sydney going backwards.

"You always get the people saying this isn't the right time. What they're really saying is, 'I don't like the policy'. When you say this is not the right time for the policy, what you're really saying is 'I don't want to see it implemented'," he said.

But acting treasurer Kelly O'Dwyer denied the government had lied and claimed the analysis showed that a permanent tax increase, coupled with a softer property market would be disastrous.

"With the slightest scalpel-like changes by the regulator, APRA, to macroprudential rules on interest-only lending, we have seen Sydney house prices fall from double digits from around 15 per cent to around five per cent in six months," she said.

"So, what Labor's proposing is to slash house prices by an even more significant amount. At this point in the cycle, what do they think that would do to confidence, consumer spending, growth and employment?"