To make the technical (and somewhat cold-hearted) argument: because it will correct a massive mis-allocation of capital in the Australian economy. This mis-allo

To make the technical (and somewhat cold-hearted) argument: because it will correct a massive mis-allocation of capital in the Australian economy. This mis-allocated capital is being poured into existing residential real estate (80% of property investment is in already existing properties). It's capital that could otherwise be put to some productive purpose, like business loans for example. The above is basically a stylised description of what has actually been happening in Australia over the past two decades: real estate loans have been crowding out business loans: http://i.imgur.com/g7a9QDL.png http://i.imgur.com/g7a9QDL.png . The upper bound for sophisticated public discussion on economic policy is, IMHO, when pollies yammer on about 'productivity' (a depressingly low 'upper bound', and not without its own issues). If we are truly serious about lifting multi-factor productivity, then we should not be distorting capital investment decisions with crazy-expensive tax breaks for property investors. It would be great if we could correct this problem, without serious macroeconomic upheaval, by gradually phasing in tax reforms. But that opportunity passed us by about a decade ago. The reforms still have to occur, mind you. It's just that now we pretty much have to eat a massive property bust (and possible crisis in the financial sector) first. As for the reforms, my top 3 would be: - Change capital gains back to indexation by inflation (rather than a flat 50% discount after 1 year of ownership). - Get the States to slowly repeal stamp duty on property and insurance, and slowly introduce a tax on the unimproved value of land (say, over a 5 year timeframe). - Simplify and repeal a whole bunch of zoning and land planning laws and regulations, at both the State and local council level.