Joe Hockey stands by his opposition to making changes to negative gearing on housing, saying it would lead to rent increases in many cities.
But shadow treasurer Chris Bowen says the treasurer should end his "stupid scare campaigns" and engage in a proper policy development process.
Their comments came after the Reserve Bank called for a review of negative gearing, joining a list of economists and housing experts who believe it should be scrutinised in terms of housing affordability.
The central bank is concerned that the negative gearing regime is over-generous and, combined with discounts on capital gains tax, could fuel speculative buying in housing.
"The bank believes that there is a case for reviewing negative gearing, but not in isolation," it says in its submission to a parliamentary inquiry into home ownership.
Mr Hockey said there was a lot of misinformation about negative gearing.
There was more than double the number of people earning less than $80,000 who owned a negatively geared property than those earning more, he said.
"This is a way for people on medium incomes or even lower incomes to be able to get into the property market," Mr Hockey told 2UE radio on Thursday.
In its submission, the RBA also notes negative gearing can help to reduce rents.
"So if you were to end negative gearing, you would actually see an increase ... in rents ... in a number of cities," Mr Hockey said.
He said tax policy could be a blunt instrument, but the Australian Prudential Regulation Authority could regulate the banks to reduce the amount of money and where they lend, otherwise known as macro prudential policy tools.
"That is a more nuanced, a more precise way of dealing with some of the high property price issues than going down the path of having a blunt instrument that applies everywhere across the country," the treasurer said.
However, changing negative gearing is not the only issue that the government has ruled out in its tax review. It has also said it will never remove the tax concessions on superannuation.
"Joe Hockey has called for a mature debate about tax reform and then ruled out most tax reform," Mr Bowen told ABC radio.
"He is all hot air when it comes to tax reform."