Treasurer Jim Chalmers is preparing to take an axe to one of the most politically sensitive features of Australia's tax system, with the federal government leaning toward scrapping or sharply reducing the 50 per cent capital gains tax discount in next month's budget.
The discount, introduced in 1999 by then-Treasurer Peter Costello under the Howard government, currently halves the tax investors pay on profits from selling shares, investment properties and other capital assets. Government insiders have signalled the rate could be cut from 50 per cent to 33 per cent, or replaced with the inflation-adjusted model that operated before 1999. Newly built homes are expected to be exempted from any reduction to preserve incentives for housing supply.
Independent analysis from UNSW Sydney has provided much of the intellectual ammunition for the change. In a recent paper, taxation specialist Chris Evans argued the discount costs the federal budget an enormous sum without delivering on its original aims.
The concession is "costing taxpayers up to A$23.7 billion a year," Evans wrote, describing the policy as a fiscal hole that has only deepened since the dotcom era. He added that the discount "has produced significant inequities, inefficiencies and revenue losses" and acted to "tilt the housing market significantly in favour of investors over owners."
Evans went further on the original 1999 rationale that the discount would encourage investment in shares and compensate for inflation. "These were dubious aims and were never likely to be achieved," he wrote, suggesting modest tweaks to the rate would only tinker with the problem rather than solve it.
Housing Minister Clare O'Neil has confirmed that tax reform is part of a wider conversation about supply, even as she has been careful not to pre-empt the budget.
"Our tax policies haven't changed, there is a conversation going on about housing taxation, but the tax policies remain as they were," O'Neil said. She framed the broader issue in stark terms: "we've got a 40-year-old problem in housing because we haven't been building enough homes for forty years."
The minister said the government's focus remained on lifting construction. "Our government is fiercely pro supply. If there's one thing we can do about this problem, it's that," she added, before signalling political will to act for prospective buyers locked out of the market: "My strong view is that we need to step up and give them a hand."
Property industry voices have warned of consequences for renters and investors. Angelina Scott, co-founder of buyer's agency bRight Agent, said landlords carrying large mortgages were already feeling the squeeze from rising interest rates, with any tax shock potentially flowing through to tenants. "We're already seeing signs of stress," she said. "The reality is they've taken on larger loans relative to their income, and that makes them incredibly sensitive to rate increases."
Treasurer Chalmers is yet to confirm specifics, with the formal announcement expected in the May budget. But the emerging consensus from official briefings, industry chatter and Labor backbenchers is that some version of CGT reform is now politically inevitable. The only question is how far the government is willing to go in unwinding a 27-year-old concession that has reshaped Australian wealth-building.
For investors, the budget calculus is clear. Existing rules continue to apply on assets held today, but anyone considering a sale in coming months will be doing so against the backdrop of the most consequential change to capital gains taxation in nearly three decades.