Joe Hockey says Saul Eslake's negative gearing critique is Sydney-focused

Joe Hockey said that while he appreciates the concerns of economist Saul Eslake, removing negative gearing has national ramifications.

Rob Hudson from the Brotherhood of Saint Laurence asked the Australian Treasurer at yesterday's luanch of the government's discussion paper on tax reform in Melbourne: "Can you commit through this tax review that if in fact negative gearing and other tax concessions are found not to be the best way to assist low-income people in terms of housing affordability, that you will do something about them?"

Hockey's response was: "I've already spoken to Saul many times over many years about his view on negative gearing and the view was when Bob Hawke got rid of negative gearing back in the '80s, a lot of people said well that meant that rents increased, so those people who were least able to afford an increase in costs ended up paying more rent because of course homeowners, home investors needed to recover the full costs of the interest payments on the loans associated with those properties.

"But Saul's point is: well it only happened in Sydney it didn't happen in other places that rents went up.

"Well, if it happens in one part of Australia, it happens effectively in all parts of Australia because the Commonwealth government can't discriminate in one particular market and certainly can't apply tax in one particular jurisdiction within the Commonwealth.

"We have to apply it to the whole country.

"So you know, people have raised negative gearing in comparison with Europe.

"Europe has rent controls, so they’ve got a different system entirely and then others have – other countries have rental subsidies above and beyond the rental subsidy we pay for those people that receive welfare in Australia.

"So there are many different systems. I and Tony Abbott, Tony Abbott and myself, all the government are concerned for first home buyers in particular who are finding it increasingly difficult to get into the home market, into home ownership. We are very concerned about that.

"One of the big areas of response is going to be supply and I'm also going to raise that with the Treasurers in the next couple of weeks but there are many other suggestions on the table and we welcome the input but I'm not giving guarantees now.

"I mean I've released the paper in the last 20 minutes and now you're the first cab off the rank to say please give a guarantee."

Eslake, the Bank of America Merrill Lynch chief economist, has been a long-term critic of negative gearing for existing dwellings, arguing it does not create supply.

Eslake also said yesterday that capital gains tax concessions should be reduced.

“I can’t see a policy rationale as to why income from speculating should be taxed at a lower rate to income from working,” he told News Ltd papers.