The personal loan deduction for people who can’t pay their mortgage is set to be rolled back, after a review found that the move was “ineffective”.

The changes to the Personal Loan Tax Credit are being rolled back by the Federal Government under a new review that found the changes were “inefficient and would lead to greater inequality”.

The review also said the change was “not likely to have a significant impact on the amount of income earners receive from the tax credit”.

The Personal Loan deduction will return to the current levels of $100,000 for each qualifying person who can not pay their mortgages, with the amount raised increasing every year.

“As the current rules make it possible for people to claim a refund, it is likely that the new rules will increase the amount available to the taxpayer and therefore have a larger impact on lower income earners,” the review said.

The change is expected to take effect in the middle of 2018, after which people will be able to claim their full refund if they have a negative balance on their mortgage, the review found.

It is not the first time the Personal Loans deduction has been reduced.

In 2016, the Personal loan deduction was reduced by $50,000 to $60,000.

Taxpayers can now claim a maximum of $3,000 of the deduction, while individuals can claim up to $4,000, with an average of $7,000 per taxpayer.

Originally published as Personal loan deductions in Australia to be restored