Labor seeks to soften the blow as controversial wealth taxes set to take centre stage in May Budget
Australia's Labor government will hand property investors a one-year reprieve before sweeping changes to negative gearing and capital gains tax (CGT) take effect, according to reporting from the Australian Financial Review citing "people familiar with the Budget" ahead of Tuesday's Federal Budget.
Assets purchased after Budget night will reportedly remain subject to existing capital gains rules until 1 July 2027, when the government will scrap the 50% CGT discount on assets held for more than a year and return to the pre-1999 system of taxing only inflation-indexed gains.
On negative gearing, landlords with properties already negatively geared will reportedly have those arrangements fully grandfathered. However, properties acquired after Budget night can still be negatively geared until July 2027 – after which only newly built properties will qualify for that treatment going forward.
The changes arrive amid a heated debate over the imposition of higher wealth taxes.
A Money.com.au survey found 39% of property investors would either step back from buying or sell existing holdings if the CGT discount were reduced, with a further 22% saying they would take similar action if negative gearing concessions were capped or limited to a single property.
Industry modelling by Qaive and Tulipwood Economics warns that combining a CGT discount cut with negative gearing restrictions could slash dwelling starts by tens of thousands and push rents 2.4% higher by 2029–30.
Opponents argue that wealth tax reforms do not address the biggest cause of housing unaffordability: Supply.
While Labor treasurer Jim Chalmers agreed that the challenges in Australia’s housing market begin with housing supply, “they don’t end there”.
“Any responsible government like ours needs to take seriously the very genuine intergenerational concerns that people have, and make the housing market fairer and make the tax system fairer as well,” said Chalmers.
The push to reform negative gearing and capital gains tax is grounded in a straightforward argument: Australia's current settings tilt the housing market sharply in favour of investors at the expense of owner-occupiers, particularly younger Australians.
Investor loans now account for 40% of all new housing finance commitments, while first-home buyer loans have fallen to just 22% – a ratio that reform advocates say reflects decades of skewed tax incentives.
The Grattan Institute argues that the CGT discount and negative gearing arrangements distort investment decisions, increase price volatility in property markets, and put upward pressure on house prices.
NSW Treasury backs removing or reducing the CGT discount, estimating it cost the government around $23 billion in foregone revenue in the 2024–25 financial year alone.
The Budget is scheduled to be announced at 7.30pm on Tuesday, 12 May.
