The cost of negative gearing and capital gains discounts will balloon to $165 billion over the next decade, according to new data that’s sparked fresh fears for the next generation of home buyers.

Parliamentary Budget Office costings published on Monday show the federal government handed $85 billion in tax breaks to property investors over the decade between 2014-15 and 2023-24.

More than double that will be lost in forgone tax revenue over the decade to 2034-35 under existing negative gearing and CGT discounts, the analysis estimated, with 67 per cent of the benefits flowing to the top 20 per cent of the national income distribution.

By 2035, taxpayers will be losing $22.8 billion in revenue annually.

Australia Institute senior research fellow David Richardson said the figures point to a grim future, particularly for younger Australians who are already struggling to deal with soaring house prices.

He said property tax breaks will continue to push up property prices and cost the government more as investors continue to flock into the market with the help of taxpayers.

“It’s bad enough now; in Sydney the cost of the median house is something like 13.5 times annual average weekly earnings,” Richardson said.

“If you project that forward 40 years in an intergenerational report, that ratio will be 32 times.”

Greens housing spokesperson Max Chandler-Mather, who published the PBO costings on Monday, said the government can’t address the housing crisis without tackling tax breaks.

“What these massive numbers represent is a generational and class war that Labor and the Liberals are waging on young people and renters – making the rich richer, while everyone else’s life gets harder,” he said in a statement.

Why tax breaks push up prices

National median property prices have already soared $59,000 in the past year, according to CoreLogic data published on Monday, with values rising between 0.5 per cent and 0.8 per cent a month since February.

That’s despite higher interest rates, which are constraining borrowing power for many home buyers, though tax breaks like negative gearing and CGT discounts ultimately artificially making property investment more attractive.

Economist Saul Eslake said that negative gearing allows property investors to deduct their interest expenses against their wages and other income in a way other home buyers can’t.

“They enable investors to pay more for housing than they would be able to otherwise, because their borrowing costs are in effect subsidised through the tax system,” Eslake explained.

He said the growing cost of the program over the next decade will be caused by a jump in landlords negatively gearing in response to higher interest rates. 

“The average interest rate deduction (which has declined from a peak of $15,659 in 2010-11 to just $9029 in 2021-22 will also reverse,” Eslake said.

Lost taxes

Richardson said the other side of the coin is that the federal budget could desperately use the tens of billions in revenue it forgoes in property tax breaks, particularly for boosting housing supply.

“It’s twice what we spend on housing and community amenities at the federal level,” Richardson said of negative gearing and CGT discounts.

The Albanese government has committed billions to addressing the housing crisis since taking office, including funding for states and territories to achieve a target of 1.2 million new homes built over the next five years.

But experts have been sceptical that Australia will be able to achieve that figure, saying a much greater investment in social housing is needed.

Richardson said the savings from negative gearing and CGT discounts would allow for a drastic increase in social housing investment.