Capital gains tax: Investors vs first home buyers
Table of Contents
- Why the capital gains tax discount is dominating Canberra ahead of the budget
- What is the capital gains tax discount and who benefits?
- Why reform is being pushed now
- Possible reform options on the table
- What opponents say — and the Greens’ rebuttal
- Politics: who stands where and why it matters
- Economic context: rates, rents and the banks
- Practical considerations for policy design
- FAQs
Why the capital gains tax discount is dominating Canberra ahead of the budget
Capital gains tax is back at the centre of Australia’s housing debate as the federal budget approaches. The capital gains tax discount — where investors pay tax on only half of an asset’s profit — is under scrutiny for its role in inflating property prices and favouring wealthier owners.
The Greens have launched a Senate inquiry that will report shortly before the budget, and Treasurer Jim Chalmers has not ruled out changes. New Parliamentary Budget Office modelling shows the concession will cost taxpayers roughly $247 billion over the next decade, sharpening the political stakes.
What is the capital gains tax discount and who benefits?
The capital gains tax (CGT) discount allows individuals to halve the taxable profit when they sell an asset they’ve held for more than a year. For property investors this can mean substantially less tax than an equivalent income earner pays for a year’s wages.
“It’s such an unfair tax break. Over half the benefit, the financial benefit of the capital gains tax discount, goes to the top 1% of income earners in Australia.”
That concentration of benefit is a central argument from the Greens. The concession is heavily skewed toward older, higher‑income Australians who have had the time and means to accumulate property and realise taxable gains.
Why reform is being pushed now
There are several converging reasons reform has returned to the agenda: a fresh spike in house prices, repeated interest rate rises from the Reserve Bank, and the upcoming federal budget. The Greens argue the CGT discount is pump‑priming demand in the housing market and tipping auctions in favour of speculators.
Senator Nick McKim, the Greens’ economic spokesperson, says the inquiry has received a strong volume of submissions calling for change. The timing matters — the committee’s report arrives just before budget decisions are finalised.
Possible reform options on the table
Political and policy options range from modest tweaks to more substantial rewrites of the concession. Key possibilities include:
- Reducing the discount rate (for example from 50% to 25%).
- Targeting changes to property gains only, while leaving share gains untouched.
- Differentiating treatment by investor size — a softer approach for “mum and dad” investors and tougher rules for large‑scale landlords.
- Grandfathering existing holdings or keeping the discount for new builds to protect supply incentives.
The Greens stress they want evidence‑based reform and will listen to Treasury modelling and expert testimony during the inquiry. That evidence will shape how ambitious any final policy change could be.
What opponents say — and the Greens’ rebuttal
Some economists warn that trimming the CGT discount could push rents higher and reduce investment in rental housing. Those concerns are taken seriously by reform advocates, who argue any change must avoid unintended consequences.
The Greens counter that property speculation has itself fuelled the housing crisis and that careful design can protect genuine small investors while removing taxpayer subsidies for large‑scale speculators.
Politics: who stands where and why it matters
Labor has not closed the door on CGT reform and reportedly has Treasury models in progress. The Greens say they are willing to negotiate — but only on meaningful reforms that help first home buyers and deliver intergenerational fairness.
For the government, the budget calculus is twofold: reform would improve fiscal position and respond to younger voters squeezed by rising prices, while also risking backlash from well‑off property owners. The Greens hope that the balance of political pressure — especially from renters and younger Australians — pushes change forward.
Economic context: rates, rents and the banks
The RBA’s recent rate rises have increased mortgage pain for borrowers and will likely flow through into higher rents. Critics note that banks tend to benefit from higher rates, while renters and first‑time buyers carry most of the cost.
Reform advocates argue stabilising or cooling property prices is necessary to give wages a chance to catch up and restore reasonable pathways to home ownership for younger Australians.
Practical considerations for policy design
Any change requires careful policy design to avoid harming supply or small investors inadvertently. The inquiry will examine whether reforms should be:
- Targeted only at housing gains, or broader across asset classes.
- Phased in or grandfathered to reduce shock effects.
- Paired with measures to boost affordable supply, such as incentives for new builds.
Key takeaways
- The CGT discount (50% for assets held over 12 months) is a major taxpayer concession concentrated among top earners.
- New PBO modelling estimates the concession’s decade cost at about $247 billion, raising budgetary and fairness questions.
- Proposed reforms range from rate reduction to targeted, sector‑specific changes and special treatment for small investors.
- Timing is critical: the Senate inquiry report comes just before the federal budget, providing a window for policy movement.
- Design is crucial: policymakers must balance fairness, housing affordability and the risk of unintended effects on rents and supply.
FAQs
What is the capital gains tax discount?
The discount allows individuals to include only half of a capital gain in taxable income if they have held the asset for at least 12 months. For property investors this can substantially reduce tax on realised profits.
Who benefits the most from the CGT discount?
Benefits are heavily skewed to higher‑income and older Australians who are more likely to own and sell appreciated assets. Estimates show a large share of the concession’s value flows to the top 1% of income earners.
Will changing the CGT discount raise money for the budget?
Yes. Reducing or removing the discount would increase tax receipts. PBO modelling has highlighted the concession’s large budget cost, which is part of why reform is politically attractive for revenue reasons.
Could reform make rents go up?
Some analysts warn that changes could affect investor behaviour and supply. Reform advocates say careful design — such as exemptions for small‑scale landlords or grandfathering — can mitigate rent impacts while targeting large speculators.
Will primary residences be affected?
The main family home is currently exempt from CGT and reform proposals discussed publicly have generally preserved that exemption. Policymakers are focused on investment properties and other non‑owner‑occupied assets.
The information in this article has been adapted from mainstream news sources and video reports published on official channels. Watch the full video here Property Investors vs First Home Buyers: The tax debate dominating Canberra ahead of the budget
