While pledging to continue to allow negative gearing,Treasurer Scott Morrison told Parliament last week that the government was prepared to look at"areas where the system is being abused or areas where they are excessive".

Professor Warren said harsher rules applied in many of the countries to which Australia compared itself. The United States imposes a minimum tax rate below which deductions could not reduce tax,Canada allows only specifically leglislated deductions and New Zealand allows negative gearing,but not work-related deductions.

In a submission to the Parliament's inquiry into tax deductibility the Treasury pointed out that Britainmuch more tightly limited the type of claims that could be made. Rental losses could only be offset against other rental income. Work-related deductions had to be incurred by every holder of that form of employment.

"It is not enough that one employee,or a subset of employees,happens to incur the expense,"the submission said.

Work-related deductions amounted to $19.8 billion in 2012-13. Rental interest deductions amounted to $22.5 billion. The cost is believed to have climbed since with the spread of electronic lodgement.

Ina paper being considered by the Treasury,Professor Warren suggests Australia adopt Britain's model of applying a global limit to all deductions including those related to work,health,negative gearing,the cost of managing tax affairs and gifts and donations.

Figures from 2010-11 showed a cap of $50,000 or 25 per cent of income,whichever was the greater,would affect only 0.9 per cent of landlords and only 1.3 per cent of those incurring a rental loss. A lower cap of $12,500 would affect 9 per cent of landlords and 14 per cent of those incurring a loss.

Professor Warren said the level of the cap would be a political decision. The important thing was to wind back excesses without affecting most taxpayers'ability to claim deductions.

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