At a time when bank funding costs are rising, rental growth is stalling, and house prices are flat in all but the bubble towns of Sydney and Melbourne, is it really a good time to have a debate about the tax breaks given to property investors?

Well yes and no.

Yes, because using investment property losses to reduce an investor’s income tax is one of the glaring problems with Australia’s tax system – a system that is, let’s remember, falling short by about $40 billion a year.

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But the answer’s also no, because negative gearing is one of the most sensitive reform discussions this country can have. If politicians and public servants wade into the debate without consideration of those sensitivities, they could crash the housing market and knock the wind out of the real economy.

This was on full show when Greens Senator Scott Ludlam, aided by Labor’s Penny Wong, tried to quiz Treasury Secretary John Fraser on the issue during this week’s Senate Estimates hearing.

Mr Fraser refused to say anything at all about negative gearing – a part he played with the full support of Finance Minister Mathias Cormann, who sat beside him and helped bat away the questions.

Matthias Cormann refused to answer Senate questions on negative gearing. Photo: AAP

The pair insisted, again and again, that because negative gearing reform may or may not be the subject of discussion in Cabinet, they couldn’t talk about it. (Watch Matthias Cormann and Mr Fraser duck the questions here.)

They know, from long experience, that trigger-happy journalists are waiting for them to say anything on the topic. One slip and the headlines could scare investors away from auctions and start a cascading fall in prices – the kind seen in a dozen or more housing markets during the global financial crisis.

Shout it from the rooftops

Mr Ludlam, on the other hand, is part of a party that wants to talk about negative gearing right through to the election. Greens voters are skewed towards the demographic that want house prices to fall to more reasonable levels.

The existing Greens policy document, which is currently being updated with the help of the Parliamentary Budget Office, shows the party has done its numbers and calculated that it can only do the Greens good on election day.

It states: “If negative gearing were removed, 95 per cent of people earning $50,000 or less would be unaffected, along with 90 per cent of people earning a total income of $50,001 to $80,000.”

It also fingers the rich as the biggest beneficiaries for the policy: “Over half of individual taxpayers with negatively geared rental housing investments are in the top 10 per cent of personal taxpayers, with 30 per cent earning over $500,000.”

The lion’s share of tax concessions is going to the wealthy.

To reduce this imbalance, the Greens want to “remove negative gearing for all asset classes, for assets purchased on or after 1 July 2015 [now proposed to be 1 July 2016]”.

Now, if the headline writers could hold fire for a minute, what the government should come out and say clearly is that the Greens’ proposal would not affect anybody already using negative gearing to minimise tax (except insofar as it helps push prices down).

Secondly, the government should point out the weakness of the Greens’ policy in fiscal terms – it would only save the budget about $3 billion in its first four years, though would ultimately save $42 billion over 10 years.

Put another way, the Greens’ policy is designed not to scare existing property owners into dumping their housing stock and crashing the market. And it is designed to ramp up slowly over a decade.

But will Mr Cormann and whoever’s left on the Turnbull frontbench be able to do that when they announce their plans for tax reform with the May?

Let’s see.

The best and worst of times

While they finish weighing up this potential reform, it’s worth noting that this is both the worst of times and best of times to tackle one of the real chestnuts of Australian public policy.

It’s the worst time, as noted above, because of the global shocks hitting our banks, and the over-inflated prices in some parts of the market.

But it’s the best of times for two related reasons: low interest rates and low capital gains.

Based on the Greens’ figures quoted above (which they obtained from the ATO), the vast majority of low- and middle-income workers do not have negatively geared property investments.

But even those who do are currently not saving much tax through negative gearing anyway.

The long-standing tradition of negative gearing is only worthwhile if the capital gain on the property is larger than the loss incurred by maintaining it, servicing the debt on it, and renting it out a low price.

Negative gearing only makes sense if there’s an off-setting capital gain.

At present, landlords in many metropolitan market are finding they cannot get the rents they want, but are also making smaller losses due to the much cheaper costs of servicing the debt on the property – due to those low, low rates.

So you’re making a smaller loss, and getting a smaller tax refund.

At the same time, capital gains in many markets are slowing or stalling (Sydney and Melbourne being the two main exceptions).

What better time, then, to tackle this policy problem – when it’s actually paying its users the smallest (or even negative) returns seen for many years.

The Turnbull government, having ruled out a GST increase, will have to look at revenue-boosting measures in a range of areas.

If it has the courage, it will tackle negative gearing now with the help of the Greens.

That would outflank Labor on the issue, put a little more revenue back into federal coffers, and begin a 10-year process of phasing out a distortion in the tax system that really should have been thrown out years ago.

Read more columns by Rob Burgess here