Peter Costello says the best way to bring down property prices is to double the interest rate

The RBA joined the chorus of voices this week calling for a review of current arrangements around negative gearing and how it fits within the overall tax system.

It seemed to also highlight the role played by changes to the taxation system under former treasurer Peter Costello.

Costello oversaw changes to the Capital Gains Tax regime in 1999 which the RBA said “resulted in capital gain-producing assets being more attractive than income-producing assets for some combinations of tax rates, gross returns and inflation”.

But the former treasurer, who is now chair of Australia’s Future Fund, told The Australian that it’s not negative gearing of CGT that is driving the surge in property prices.

“Negative gearing isn’t causing property prices to go up; what is causing that is interest rates,” he said.

He doubled down saying, “when interest rates fall, property prices have to go up … The quickest way to bring down property prices is to double the interest rate.”

Costello agreed with current treasurer Joe Hockey that there should be no change to the current arrangements around negative gearing.

“I don’t think we should change the rule that allows you to deduct borrowing costs for any business, including the business of rentals if you want to go into that business,” he said.

You can read the full article in The Australian here.

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