OECD joins calls to rethink Capital Gains Tax discount

Australia’s Labor Government has found an unlikely ally as it considers scaling back the 50% capital gains discount for property investors.

The OECD – led by former Liberal finance minister Mathias Cormann – has noted the country’s tax settings are partly to blame for the escalating housing crisis.

“It’s very cooked, I think is the word,” said the Australia Institute’s senior content producer Elinor Johnston-Leek.

Mr Cormann was Australia’s longest-serving Finance Minister and held the role under Prime Minister’s Abbott, Turnbull, and Morrison.

“This is not a left-wing organisation,” pointed out the Australia Institute’s chief economist Greg Jericho.

“The OECD is pretty conservative. It always wants government to cut back on spending.”

Mr Jericho told the Australia Institute’s Dollars & Sense podcast that while the OECD indicated the Albanese government should reign in its spending “a little bit”, it highlighted a much bigger problem.

“It was really saying, fix your tax base. You’ve got too many exemptions; you’ve got too many discounts.”

The discount costs the federal budget up to $23 billion a year in forgone revenue.

He explained the country’s housing boom “took off” in the early 2000s “just after John Howard decided to change our capital gains tax was dealt with”.

Currently Australians who make a profit by selling an investment property they’ve held for 12 or months are only required to pay tax on half of their return.

“Comparing us to the rest of the OECD, which is all the advanced economies, our housing prices relative to our incomes have risen much more than others,” said Mr Jericho.

The OECD’s report states, “Removing some of the favourable tax treatment of residential property ownership, including capital gains tax concessions and negative gearing, would help to cool demand and could help to mitigate upward pressure on house prices,”

It also identifies a lack of social housing as problematic, with Australia’s supply well below average compared to other developed economies in the world.

“We’ve got basically a quarter of a century’s worth of deficit,” said Mr Jericho.

“We’ve got to somehow build that back up again. So, the OECD pointed out, build some bloody public sector housing.”

Research by the Australia Institute shows that in 1995-96, public housing made up 6% of housing tenures in Australia. By 2019-20, that figure had halved to just 2.9%.

While the Commonwealth provided $12.3 billion in tax breaks to property investors in 2025, it spent only $9.6 billion on social housing, homelessness services, and rent assistance combined.

As reported by The Australian Financial Review, the country’s federal opposition has signaled it will oppose winding back the capital gains discount, while the Greens want to see it gone.

The NSW Minns Labor Government has joined the push to see it overhauled.

In its formal submission to a federal parliamentary inquiring into the capital gains tax, it warned wealthy investors were reaping the rewards at the expense of first homebuyers.

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