A new report is aimed at ending the myth that tax concessions for the wealthy help everyday Australians.

The Australian Council of Social Service (ACOSS) has used the study to call for action to restrict tax deductions for negatively geared property investments and the 50 per cent discount on Capital Gains Tax for investors.

ACOSS says these measures together cost the budget $7 billion a year, while driving house prices ever higher.

The report, ‘Fuel on the fire: Negative gearing, Capital Gains Tax and housing affordability', dispels the myths that negative gearing makes rental housing more affordable and that the benefits mainly go to ‘mum and dad' investors on middle incomes.

The findings match those of similar studies by other groups, which show that high-end tax-breaks do not help the average Australian. 

“Negative gearing and the tax break for capital gains don't improve housing affordability; they make it worse by fuelling home price booms like the one in Sydney right now,” said ACOSS CEO Dr Cassandra Goldie.

“Less than one tenth of negatively geared housing investments are for new properties, the other nine tenths bid up the price of existing housing.”

“These tax breaks also make it more difficult for the Reserve Bank to manage the economy. Over-heating in housing markets is making it harder for the Reserve Bank to cut interest rates when this is needed. The tax breaks are feeding a fire which the Reserve Bank and APRA are trying to put out,” Dr Goldie added.

She said easier access to credit and a cut to capital gains tax in 1999 have made the housing situation worse.

“Since then, lending for investment housing has risen by 230 per cent compared with 165 per cent for owner occupied housing,” Dr Goldie said.

“It's not your average mum and dad investors on middle incomes who are benefitting from the generous tax concessions that have allowed two thirds of individual rental property investors, or 1.2 million people, to report tax-deductable ‘losses' of $14 billion in 2011.

“The reality is that over half of geared housing investors are in the top 10 per cent of personal taxpayers and 30 per cent earn more than $500,000.

“The reason that negative gearing strategies are widely used is that people can claim deductions for ‘losses' against their wages every year, even though the investment is actually profitable because the value of the property rises every year. They then get a 50 per cent tax discount on the value of their capital gains when it is sold.”

ACOSS has used the findings of the report to make the following recommendations;

1. Restrict tax deductions for ‘negatively geared property investments

Income tax deductions for expenses relating to ‘passive' investment in rental housing and other assets such as shares and agricultural schemes should only be offset against income received from those investments (including capital gains) and not against other income (including wages).

The revenue from such a measure is estimated to be about $500 million in 2015-16, and $1 billion in 2016-17.

2. Use part of the revenue savings to strengthen tax incentives for investment in new affordable housing, including building on the strengths of the NRAS scheme

As a first step, reinstate funding for round 5 of the National Rental Affordability Scheme to finance the construction of 12,000 new affordable rental dwellings and restore investor confidence in the program.

This measure would cost about $40 million in 2015-16, and $100 million in 2016-17

3. Increase tax rates on capital gains and reduce them on other investment incomes, to improve equity and reduce distortion of investment decisions by the tax system.

Consistent with reforms advocated in the ‘Australia's Future Tax System' Report, ACOSS says a common personal income tax discount should be introduced to replace the current tax treatment for capital gains, housing rents, interest bearing deposits, shares and similar investments (excluding superannuation and owner occupied housing). The group says this should be substantially less than the current 50 per cent discount for capital gains.