Australian Taxation Office figures showing landlords claimed $5 billion in rental losses in 2006 are likely to create another chorus of demands that negative gearing deductions be discontinued.

The ATO data shows that rental losses in 2006 (the latest available data, apparently) represented a 25% rise. One cause was that rents grew 8% on average at a time when interest costs rose 14%.

The figures indicate two-thirds of investment property owners claimed a loss on their rental properties. Deductions for interest on rental properties rose $1.7 billion to $13.8 billion.

This kind of data usually inspires claims that property investors receive unfair tax breaks at a time when first-home owners are struggling. Such claims tend to overlook the consequences last time a Federal Government disallowed negative gearing claims (back when Paul Keating was Treasurer) - it created a shortage of rental properties and rents rose sharply.

In the current climate of low vacancies and rising rents, it would be ill-considered move.