The change would allow landlords who presently use negative gearing to keep doing so until they sell their properties, a rule known as "grandfathering".

At present only one half of each capital gain is taxed, a discount introduced on the recommendation of the Ralph review of business taxation in 1999. The costed proposal would cut the discount from 50 per cent to 40 per cent in line with a recommendation of the Henry tax review.

Prepared in response to a request from Greens leader Richard Di Natale, the costing has a "low reliability" because of the volatility of capital gains tax and uncertainty about how taxpayers would respond to the change.

The budget office says that over time the takings would climb as home ownership turned over and a smaller proportion of homes was negatively geared. If implemented on July 1 this year the change would would save $291 million this financial year, $1.5 billion next year, $4.2 billion by 2018-19, and $11.5 billion per year by 2025-26.

The office also costed a number of other options: cutting the capital gains tax discount to 40 per cent without any move against negative gearing (four-year saving of $2.3 billion); cutting the capital gains tax discount to 25 per cent ($5.7 billion); removing the capital gains tax discount ($10 billion); removing both the capital gains tax discount and negative gearing ($22.3 billion); and grandfathering negative gearing while cutting the capital gains tax discount to 25 per cent ($14.5 billion).

Greens deputy leader Scott Ludlam said the capital gains tax discount discriminated against those earning income from savings and work rather than accumulating assets.

"No credible argument exists to justify why the creation of wealth through assets should be taxed at a different rate than the creation of wealth through income," he said. "The data shows the vast majority of the benefits go to the wealthy. By income alone, 73 per cent of capital gains discounts go to the top 10 per cent of households."

The Greens want to tackle both because the capital gains discount enhanced the value of negative gearing.

"Normally investors would not be interested in an investment that is expected to run at a loss," Senator Ludlam said. "But many are happy to purchase property where the rental income doesn't cover the interest payments, because they expect to make large capital gains in the future from selling it, which are subject to the massive discount."

"When the headline rate of capital gains tax was cut to half the income tax rate by then prime minister John Howard in 1999, it made negative gearing much more attractive. Australia suddenly became a nation of losers.

"In the financial year before the discount was introduced, property investors actually reported a net rental income of $219 million, but in 2000-­2001 they reported almost half a billion dollars in losses, with the amount climbing over 10 years."

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