acorn I think Neg Gearing [NG] was introduced under the standard S51[1] deduction of expense in earning an income.Interest of owners being in the same category as say Overdraft Interest to other businesses. Overall Losses of business could be set off against other income sources.
Thing is that this is a 1945 at least section of the tax act and when it was established,there was little windfall gains in Capital Gains,only basically the inflation rate so the 'incentive' for the general public even high income earners was not there to purposefully use rental property to lower yearly tax.
I would say it was the 70's Whitlam Era that unleashed a "Don't Pay TAX" attitude a la the Bottom of the Harbour schemes and the "legitimate" NG investment. NG was further popularised by the Housing Market going into a boom imho partly based on the turnover of Renovator Period Housing particularly inner city. Remember there was No Capital Gains Tax on over 1 year holding 1970's/early 80's,think that was brought in 87?
Anyhow imho it was this Renovation Fad that stripped the renters of the basic affordable rental house stock. This Fad also brought a lot of new class to being landlords for tax saving,the halycon days of rapid capital gain return while 'saving' your yearly tax bill.
I realise I'm just being anecdotal but that's a bit of the history of the NG deduction. cheers
