The federal government is weighing changes to the long standing 50% capital gains tax discount ahead of the May budget, with a Senate inquiry set to test whether the current settings still do their job or simply deepen housing inequality. The inquiry, driven by a crossbench push, sits against a backdrop of stubbornly high living costs, slowing productivity and political pressure to show progress on housing affordability without fuelling inflation or interest rates.
At the centre of the debate is a proposal to cut the capital gains tax discount from 50% to 25% on a landlord’s second and later investment properties and to cap negative gearing at one property. Real estate lobby groups argue that about 2.4 million households renting from private landlords, roughly 26% of all households, could see rents rise as investors try to recoup the higher tax bill when they sell. They frame the CGT discount as a key part of the return that makes rental housing viable and warn that tighter tax settings may shrink the pool of private rental stock or prompt owners to pass costs straight through to tenants.
On the other side, union and policy think tank submissions suggest the rental impact from a CGT trim looks modest compared with the potential gains in affordability and productivity. One prominent research organisation estimates that winding back the discount might see around 10,000 fewer homes built over five years to 2030, lift capital city median rents by only about $1 a week and shave less than 1% off property prices. Union bodies also argue that generous CGT treatment encourages investors to pour money into existing housing rather than more productive parts of the economy, which contributes to Australia’s weak productivity growth and makes it harder for younger generations to buy a home.
Industry groups are pushing for any CGT changes to sit within a broader overhaul of housing and investment tax settings, not as a one off fix. Property and development organisations say focusing on the discount alone risks ignoring bigger drivers of high prices, such as limited housing supply and planning constraints, and could distort investment if tweaks apply only to residential property and not to other asset classes such as shares, superannuation or cryptocurrency. Superannuation funds warn that removing the discount across all assets could dent returns by roughly $3300 to $5500 a year for an average balance of $420,000 and could slow build to rent and other rental housing projects they help finance, although these figures depend heavily on final policy design.
Taken together, the unfolding debate looks like a test of how far the government is prepared to go on tax reform to balance housing affordability, rental stability, intergenerational fairness and long term growth. It seems likely any decision will involve trade offs, with stronger signals to shift capital into more productive uses and ease pressure on first home buyers on one hand and the risk of nudging some investors out of the market or nudging rents higher in the short term on the other hand. With the Senate hearings spread across three days and a wide range of economic and industry voices involved, the final package, if it arrives, may lean towards incremental change rather than a sweeping rewrite.
