Treasurer Scott Morrison hints negative gearing changes are off the table

The federal government has signalled that plans to cap the negative gearing tax benefit as part of its tax reform policy are unlikely to proceed.

When asked last night by 2GB's Money News host Ross Greenwood about negative gearing, treasurer Scott Morrison responded by saying: "You have always got to tailor your policies to the environment you're in."

"Right now we have a very special set of circumstances," he said.

"If we are going to make changes in tax then it has to be made up for by changes in the tax system elsewhere."

"The scope for that has been reduced over time and the final decisions will ultimately be in the budget."

He said that the Labor Party have put forward a policy on negative gearing which they haven't thought through.

"The PM made it clear last September he was putting that issue (negative gearing) generically back on the table to be considered.

"It had been removed before.

"He asked for it to be looked at so there's been a process of looking at that.

"But no one should draw a conclusion from that, that necessarily means the government would make changes to the negative gearing.

"They were saying the same thing about GST.

"People were asserting we were going to do something differently on that.

"We looked at it (GST) carefully, we made a considered decision and I think we made the right decision.

"You don't rush to failure on this stuff.

"We have to be careful and be patient that we get these calls right," the treasurer said which appears to clear the way for an easy assault on Labor's tax plans in the run-up to the federal election.

Senior sources have confirmed to The Australian Financial Review that while the proposal to cap negative gearing deductions at $20,000 a year had been looked at, it has been decided "we're not going to touch it".

For the policy to have raised the estimated $1 billion it was worth annually, it would have had to apply to existing investors with multiple properties. A source said it was "in our DNA not to apply tax increases retrospectively".

Treasurer Scott Morrison has previously flagged the option of a cap, describing it as targeting the "excesses" of negative gearing. He and his colleagues have stopped using that description in recent days in a strong hint that there will now be no change.

The AFR noted on Wednesday, Mr Morrison, when pressed, used the term "enthusiasms".

The decision to not proceed with changes to negative gearing leaves the government with just superannuation tax concession and tax deduction trade-offs to help fund plans to deliver a small personal income tax.

Labor says its policy – to halve the 50 per cent capital gains tax discount for investors to 25 per cent, and to limit all new negative gearing to new homes only from July 1, 2017 – will raise $32 billion over 10 years and generate an extra 25,000 construction jobs annually because of the demand for new housing.

But the government is expected on Thursday to seize on a report by property and building industry advisory group, BIS Shrapnel, which claims the opposite.

It claims Labor's negative gearing plans will increase rents by an average of 10 per cent, or $2600 a year, depress new home construction by 4 per cent and shrink gross domestic product by $19 billion a year.

BIS Shrapnel claims the plans will also lead to 175,000 fewer jobs over 10 years, shrink government tax revenues by $1.65 billion a year and put 70,000 households into rental stress.

But the Grattan Institute chief executive John Daley slammed the report as untrustworthy and implausible.

He said the findings were the product of skewed and grossly exaggerated assumptions and the report could not be trusted because BIS Shrapnel will not say who commissioned it.

You can listen to Scott Morrison's chat with Ross Greenwood here.