NSW Premier Gladys Berejiklian was advised by Treasury officials that negative gearing policies were pushing up house prices but declined to challenge her federal colleagues' support for it, leaked documents reveal.
A cabinet briefing reveals that top Treasury officials advised NSW to advocate a review of negative gearing tax concessions because they were pushing up house prices, but just weeks after that advice was given, the then new Premier declined to challenge the federal Coalition's support for the policy
Ms Berejiklian declared housing affordability her top priority upon becoming Premier last year and said she was "open minded" on the issue.
But she soon apparently shut down the possibility of picking a fight with Prime Minister Malcolm Turnbull over negative gearing policy despite just weeks earlier being being briefed by treasury officials that NSW should advocate the multi-billion dollar investor tax breaks be reviewed to supplement the "modest gains" being achieved by state government housing affordability policy.
"I don't feel at this stage that is something I would necessarily touch," the Premier said last January. "If there is overwhelming advice one way or another ... [then] of course I'll raise that".
Earlier this week it was revealed that Malcolm Turnbull went to the 2016 election arguing that Labor's policy of ending future negative gearing tax breaks would "smash" home values only after the federal treasury department had told the federal Treasurer's office they would have only a modest impact on values.
But a leaked cabinet-in-confidence then-Treasurer Berejiklian's department said studies showed that negative gearing and capital gains tax breaks, independently estimated to cost up to $12 billion a year, were causing "substantial distortions" in the property market and pushing up prices and should be reviewed.
NSW Labor's shadow treasurer, Ryan Park, said the document proved both Liberal governments were hiding information from home buyers.
"[They] have been completely misleading the community," he said. "When it comes to addressing this crisis the NSW Government have simply done too little too late".
The bureaucrats generally supported the state government's overhaul of the planning act and the creation of a Greater Sydney Commissioner with power to override local councils but were skeptical about how much the state government could achieve without agitating for change at the federal level.
"These changes are incremental and would only have a modest impact on overall housing supply [and] affordability," the unsigned briefing said. "Broader supply and demand measures are required to address the root cause.
"Federal government policy levers could [contribute to improving] housing affordability."
Acting Treasurer Brad Hazzard pointed out it came before later reforms such as a housing affordability package that offered stamp duty concessions for owners of homes between $650,000 and $800,000.
"The package is already delivering strong results with the number of first-home owner grants more than tripling," Mr Hazzard said. "As the Premier has made clear previously, if the government can do more to ease affordability, it will."
The briefing was prepared only weeks before Ms Berejiklian's ascension to the top job, following the resignation of her predecessor Mike Baird, and for a December meeting of Australian state and federal Treasurers and is classified as "sensitive".
Mr Baird had previously used his political capital to back policy reform proposals such as lifting the GST to 15 per cent.
The briefing shows Treasury agreed with the state government that increasing housing supply was among the best ways to make housing affordable but thought the government faced a "significant challenge" in making up for a forecast long-term shortfall of 100,000 homes despite recent record approvals.
Failure to tackle housing affordability risks leaving Sydney with "entrenched inequality" and a city unattractive to both students and professionals and with a population, particularly among older renters, increasingly dependent on welfare.
Former Planning Minister Rob Stokes - who was booted from the portfolio by Ms Berejiklian in her first cabinet reshuffle - sparked a row in his own party just weeks before the Premier's statement by criticising negative gearing as doing nothing to help supply.
He drew criticism from federal Liberal Ministers and praise from Labor's shadow Treasurer Chris Bowen.
Since taking office Ms Berejiklian's government has overhauled other aspects of the planning system, including stripping councils of planning powers for major developments.