Here are the charts everyone is talking about because they threaten negative gearing's very existence

Photo Mike Hewitt/Getty Images

Negative gearing is one of the sacred cows of Australian tax and as a result, something that makes politicians wary when talking tax reform.

But progressive think tank The Australia Institute has been hammering away at the issue for some time and this week released research commissioned by the activist group GetUp, looking at who benefits the most.

The report says the tax deductions flowing from the combination of negative gearing and capital gains tax (CGT) cost taxpayers $7.7 billion annually.

Using National Centre for Social and Economic Modelling (NATSEM) to assess the distribution of benefits from negative gearing and the CGT discount the researchers said that:

Negative gearing of residential investment property is currently reducing tax revenue by $3.7 billion per year. Half of the tax break flows to the top 20 per cent of households. By comparison the bottom half of Australians only get 20 per cent of the benefit of negative gearing.

The CGT discount is currently costing the budget $4 billion per year. The distribution of the CGT discount is also skewed to high income households. Almost three quarters (73.2%) flowed to the top 10% of households, 82% went to the top 20% and just 7% went to the bottom half.

Now it might be easy for some to disregard the research, given it was commissioned by Getup, but that doesn’t make it any less valuable for a policy debate on whether what seems to be a tax shelter for wealthier Australians is fair or not in what’s supposed to be a progressive tax system.

Nor does it detract from the socio-economic impact it has on house prices as investors outbid owner-occupiers who don’t have access to a tax shelter that allows them to deduct interest costs the way investors can. Indeed, data released by the RBA yesterday shows total outstanding credit for housing investment is at $A499.6b – an all-time record high.

RBA research using HILDA survey data supports the notion that Australia’s progressive tax system is being circumvented by negative gearing.

“Despite rising levels of household indebtedness in aggregate, the distribution of household debt has remained concentrated among households that are well placed to service it,” the RBA says, meaning they’re fine with it because the debt is in the hands of the wealthy, so it’s okay they can afford it.

It looks like it’s time for the nation to have an adult conversation about the real costs and benefits of negative gearing and whether the precious financial resources of a cash-strapped federal government are best spent subsidising the investment property portfolios of the wealthiest Australians.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.