The Federal Government is actively considering imposing new restrictions on negative gearing, with proposals to cap the tax break at just two investment properties. This move is part of broader efforts to repair the budget deficit and address mounting concerns over housing affordability across Australia.
Treasury Review and Policy Shift
Treasury is currently examining possible changes to negative gearing, alongside reforms to the capital gains tax discount for existing properties. In August 2025, Treasurer Jim Chalmers declined to rule out restricting negative gearing or the CGT discount, marking a significant shift from Labor's previous stance. Following the 2019 election defeat, Prime Minister Anthony Albanese had ruled out changes to these concessions while in Opposition.
Understanding Negative Gearing and CGT Discount
Negative gearing allows property investors to deduct losses on an investment property, such as interest payments and maintenance costs, from their taxable income. Under rules introduced in 1999 by the Howard government, investors pay tax on only half the capital gain made on an asset held for more than 12 months, effectively granting a 50 per cent CGT discount. Before these changes, capital gains were indexed to inflation rather than automatically discounted.
Financial Implications and Revenue Impact
The independent Parliamentary Budget Office estimates that the CGT discount will cost the budget $7.9 billion in forgone revenue in the 2027 financial year alone. Dr Chalmers has emphasised that the government is considering various options for the budget, stating, 'We're considering other options for the budget, as we always do at this time of the year. We don't finish the budget in February, we finish the budget in May, and any next steps in any of these areas would be a matter for cabinet in the usual way.'
Historical Context and Previous Proposals
Labor previously took plans to halve the CGT discount to 25 per cent to the 2016 and 2019 elections, but both campaigns ended in defeat. Sources indicate that Treasury is examining the impact of limiting negatively geared properties to just two, as the number is currently unlimited. Australian Taxation Office data from the 2023 financial year revealed more than one million Australians negatively gear property, with a third owning more than one investment property.
Stakeholder Perspectives and Economic Arguments
Last year, the Australian Council of Trade Unions called for negative gearing and the CGT discount to be limited to just one investment property. Conversely, real estate groups and economists argue that reducing the number of properties investors can negatively gear could reduce the availability of rental housing. Dr Chalmers is seeking additional revenue to offset growing spending commitments, with a reduction in negative gearing tax deductions potentially strengthening the budget by billions of dollars.
Revenue Projections and Expert Analysis
The Parliamentary Budget Office estimates revenue foregone due to negative gearing could be about $14.1 billion by 2035–36, while about $6.5 billion in revenue was lost in the 2025 financial year alone. The Grattan Institute advocates halving the capital gains discount and limiting negative gearing so rental losses can no longer be offset against income, claiming it would strengthen the budget bottom line by around $11 billion annually. They argue that rents wouldn't change significantly and housing markets wouldn't collapse.
Housing Supply and Affordability Concerns
Since July 2024, the federal government and the states have had a plan to build 1.2 million homes over five years, aiming to boost housing supply and address affordability issues. However, Robert Carling from the Centre for Independent Studies warns that reducing negative gearing or CGT concessions would reduce investor demand and decrease housing supply. He notes, 'Owner-occupier demand would not neatly fill the void left by departing investors, as the types of housing favoured by investors and owner-occupiers are not perfectly interchangeable.'
Debates and Criticisms
Carling further argues that negative gearing and the CGT discount have become a 'whipping boy' for housing affordability debates, which he views as baseless. He states, 'Cutting the discount is variously seen as a key plan for tax reform, a revenue raising measure, the key to lowering house prices and the solution to intergenerational and vertical inequity. And our submission argues that it is none of those things.'
As the government continues its review, the potential capping of negative gearing to two properties remains a contentious issue, balancing budget repair with housing market stability and affordability for Australians.
