Day after day we are seeing more signs that the housing-credit bubble is coming to an end, but also that low-income Australians are set to be hit hardest when it does.

The latest report, from global accounting giant KPMG, shows that the poorest 20 per cent of Australian households have started leaping into negatively geared property investments “despite their inability to manage the financial risks”.

The report backs the long-held views of some economists and commentators, including this one, that Australia’s mania for property speculation will end in tears.

It notes: “…there is a fixation in Australia about growing wealth through investing in property. This attitude is reinforced in television shows we watch and the newspaper and magazine articles we read.

“It should not be surprising that the poorest in our society, who are exposed to these messages and who see others growing their wealth through investing in negatively geared property, also want to participate in this investment activity.”

Major media owners, whose very existence relies on advertising from the banking and real estate sectors, have promoted the property wealth machine so effectively, and it has grown so big, that it’s now on the verge of collapse.

What many Australians still do not realise is that the arguments in favour of scaling back negative gearing and the capital gains tax discount – the two central causes of the housing-credit bubble – are not only to do with equity and fairness.

Yes, it’s unfair for some taxpayers to pay proportionally more tax so that housing investors can ‘get ahead’ by bidding up property prices and collecting handsome tax concessions along the way. But the harm goes much further than that.

Those two tax laws, combined with record low interest rates and inadequate prudential regulation, are a fundamental drag on the economy as well.

The New Daily has spelled this out before. The problem is not just a few billion handed back to investors each year – it is also what those laws do to capital allocation within the economy.

The bank boom

The current property tax regime dates from 1999 – that was the year the starter’s gun was fired on the race to get Australians to borrow record sums of capital to invest in housing.

Or put another way, it enabled banks to rapidly expand their residential mortgage books, at the expense of business lending (see chart below).

The 1999 capital gains tax changes helped turn a medium-sized banking sector into a giant – it now makes more than six times the profit of Australia’s biggest employers, Woolworths and Wesfarmers, combined.

So who benefits when banks make record profits year after year? Bank shareholders, that’s who.

And while most Australians own some bank shares through their superannuation accounts, the people making big bucks from this money-go-round tend to be older, wealthier Australians.

Their large bank shareholdings are great money-spinners, but come at the cost of bigger debts carried by their children or grandchildren.

Last chance for action

The Turnbull government is currently making its final decisions in relation to the 2017-18 budget.

We won’t know until May 9 whether it is backing the interests of the banks’ major shareholders, or the long-term interests of middle Australia. It can’t do both.

There are rumours swirling that, despite opposition of troglodyte backbenchers, Prime Minister Malcolm Turnbull and Treasurer Scott Morrison are still trying to get some sensible property tax reforms into the budget.

We should all hope they do. The sooner this economic distortion is removed, the less damage will be done – and the sooner we can return to real ‘jobs and growth’.