Labor has indicated the capital gains tax discount (CGTD) could be substantially reworked in the May budget, following a Greens-led parliamentary inquiry that found the Howard-era tax settings are exacerbating intergenerational inequality in Australia’s housing market.
The 50% discount, in place since 1999 for assets held more than a year, “skews the ownership of housing away from owner-occupiers and towards investors,” the report found.
It also warned the benefits “are unequally distributed, with implications for income and wealth inequality and intergenerational inequality.”
Treasurer Jim Chalmers said he would review the report but stressed cabinet would make budget decisions.
“It will no doubt identify some issues which are familiar to us,” he said. “Any further steps will be a matter for the cabinet.”
The inquiry found that combining negative gearing with the CGTD has “turbocharged the housing crisis by giving property investors a massive tax break that makes it easier for an investor to buy their 7th house, or their 70th, than for a renter to buy their first home.”
It also highlighted that “if you go to work as a teacher, a bartender or software developer you pay double the amount of tax than someone who received the same amount of money taking advantage of soaring property prices by buying and selling investment properties.”
The Greens used the report to call for ambitious reform, saying it provides parliament with “a historic opportunity to pass genuinely ambitious and progressive tax reform, including reforms to the CGTD, negative gearing, and the tax treatment of trusts.”
Former ACTU Secretary Bill Kelty told the committee: “I need the parliament of this country to unequivocally stand up and say that they’re on the side of young people.”
Independent senator David Pocock recommended removing the discount for properties bought after 1 July this year and introducing a new 25% discount for new homes, alongside limits on negative gearing to a single investment property.
Coalition senators rejected the calls for reform, arguing that “the real answer to housing affordability is more supply, not another Labor housing gimmick.”
For real estate agencies, any changes to the CGTD and negative gearing could alter investor demand, slow price growth in the existing housing market, and improve access for first-time buyers.
Treasury modelling suggests a possible reduction to 33% for housing investors while retaining the 50% discount for shares and other assets.
The real estate industry has largely opposed changes to these settings. Ray White Group has warned that any reform could reduce rental supply and put further pressure on tenants. In a letter circulated to its 10,500 members, managing director Dan White and chief economist Nerida Conisbee said:
“We are deeply concerned that if these reforms proceed, they set a precedent for further tax changes that will continue to erode the returns of property investors and with them, the supply and affordability of rental housing across Australia. We will continue to make this case clearly and loudly.”
The letter cited rising landlord costs, noting land tax in New South Wales had increased 60% over five years while insurance costs rose 51%, with corresponding rental increases of 49.4% for houses and 53.6% for units. Ray White also pointed to Victoria, where higher land taxes and property compliance had contributed to a loss of 24,000 rental properties in 2024.
Domain’s Chief of Research and Economics, Dr Nicola Powell, stressed that negative gearing and CGT are not the main drivers of housing prices.
“There’s a real tendency to treat negative gearing and CGT as a quick fix, but housing affordability just isn’t that simple. These tax settings haven’t been the main drivers of price growth. It’s been low interest rates, strong population growth and not enough homes being built. Even with CGT changes, we’re talking about relatively small price movements of around 1–4%… What could shift more meaningfully is who’s buying. If investor activity eases, first-home buyers could have a better chance of getting in.”
Dr Powell said broader reforms, including tackling supply, reviewing stamp duty, and investing in infrastructure to unlock housing, would be necessary to meaningfully improve affordability.
With the federal budget due on 12 May, potential changes to the CGTD and negative gearing remain a flashpoint, with policymakers, investors, and industry groups closely watching the debate over Australia’s housing future.
