The Australian Labor government appears poised to significantly scale back lucrative tax concessions for property investors in an upcoming budget announcement, a strategic shift that has garnered approval from leading economists and social housing advocacy groups. While this policy adjustment is anticipated to enhance intergenerational equity and bolster federal budget revenue, housing experts caution that its direct effect on improving housing affordability for ordinary Australians will likely remain relatively minor.
Parliamentary Inquiry Highlights Market Skew
A parliamentary inquiry spearheaded by the Greens and released this Tuesday delivered a damning assessment of the current 50 per cent capital gains tax discount. The report concluded that this tax break has systematically skewed the housing market in favour of investors, disproportionately disadvantaging owner-occupiers and delivering unequal benefits to wealthier Australians. Labor senators Ellie Whiteaker and Richard Dowling, who endorsed the inquiry's findings, emphasised that younger generations face fundamentally different and more challenging economic circumstances than their predecessors.
Principles for Reform and Treasury Options
The senators argued that any forthcoming tax reform must be guided by the principles established at Treasurer Jim Chalmers' 2025 economic reform roundtable, which prioritised creating a fairer tax system for young people. This report provides the clearest signal to date that the government intends to include changes to the capital gains tax discount in the next federal budget. Treasury officials are understood to be actively developing a suite of policy options, including a potential reduction of the concession from 50 per cent to 33 per cent, alongside a parallel examination of scaling back negative gearing tax breaks for property investors.
Economists Weigh In on Impact and Alternatives
Domain's chief economist, Nicola Powell, offered a tempered perspective, noting that negative gearing and capital gains tax settings have not been the primary drivers of rampant property price growth. 'There's no silver bullet for housing affordability,' Powell stated. 'Broader reforms, such as transitioning from stamp duty to a land tax, reviewing policies that discourage the efficient use of existing housing stock, and strategic infrastructure investment to unlock new supply, could collectively make a more substantial difference.'
Brendan Coates, an economist from the Grattan Institute, informed the inquiry that reducing the capital gains discount would positively impact long-term budget sustainability and foster economic growth. However, he concurred that as a tool to directly improve affordability, such a measure 'falls a long way behind' more impactful interventions focused on boosting housing supply.
Modelling Predicts Modest Market Effects
Research conducted by the Commonwealth Bank provides quantitative insight into the potential market impact. Their modelling suggests that cutting the capital gains tax discount to 25 per cent would result in property prices settling approximately four per cent lower than the baseline over a period of several years. Notably, this projected decrease is less than the price growth many Australian capital cities experienced in a single quarter during 2025. The same research indicates rents would be marginally higher, around 0.2 per cent above the baseline over a decade.
Government Signals Openness to Reform
Treasurer Jim Chalmers has maintained that no final policy decisions have been made, but he explicitly left the door open for potential announcements in the budget. 'I've tried to be upfront in saying that we are working up some options,' Chalmers told ABC Radio on Wednesday. 'I'm not going to detail what those options look like, but there is certainly an appetite for more tax reform if we can successfully land it.'
Advocacy and Calls for Social Housing Investment
Greens Senator Nick McKim, who chaired the parliamentary inquiry, expressed satisfaction that Labor is signalling reform of what he termed 'the most unfair tax break on the books.' 'This is a historic opportunity for the government, and we hope they take it,' McKim told ABC Radio. Echoing calls for the revenue to serve a social purpose, Maiy Azize, a spokesperson for the advocacy group Everybody's Home, urged the government to channel any additional revenue generated from winding back the capital gains discount directly into funding new social and affordable housing projects.
