Pressure mounts on Albanese Government to curb investor tax breaks after CGT inquiry findings

The Albanese Government has again signalled its plans to wind back the capital gains tax discount, after a Senate inquiry gave Treasurer Jim Chalmers the green light ahead of the May budget.

The inquiry’s majority report was tabled on Tuesday and found the current system favours investors and fuels intergenerational inequality.

It was supported by Greens Senator Nick McKim, Labor Senators Ellie Whiteaker and Richard Dowling, and independent Senator David Pocock.

They agreed that “while there are a number of factors that influence housing markets, there is evidence that the concessions provided by the capital gains tax discount, in combination with negative gearing, have skewed the ownership of housing away from owner-occupiers and towards investors.”

“The benefits of the capital gains tax discount are also unequally distributed, with implications for income and wealth inequality and intergenerational inequality,” the senators noted.

“This is the first time since 2019 that Labor has acknowledged the fundamental unfairness of the CGT discount,” said Committee Chair and Greens Economic Justice spokesperson Senator Nick McKim.

He said it was now “impossible” for Labor to ignore that the system needs to change.

“The Greens have high expectations of the Government. Tinkering around the edges is not going to cut it.”

National housing campaign Everybody’s Home agreed.

“Reform can no longer wait, and there will never be a better moment,” said Everybody’s Home spokesperson Maiy Azize.

“The government has the numbers, the evidence, and the support of voters to be bold. Inaction will make housing even harder to afford and widen the gap between the rich and everyone else.”

The Greens have recommended the CGT discount be abolished for investment properties and substantially reined in across all asset classes so that “unearned income from owning assets is taxed as closely as possible as earned income from going to work each day”.

Senator McKim also called for the changes to apply retrospectively “to ensure a significant release of housing is made available for renters to buy”.

Better Renting CEO Angela Cartwright said tenants have been bearing the brunt of the current system for too long.

“Renters in Australia are sick and tired of paying too much for too little while watching people wealthy enough to own bonus homes get rewarded by government for contributing to rental housing precarity.”

Labor senators tempered their support and pointed out that “housing outcomes are shaped by a range of structural factors, with housing supply playing a central role in determining long-term affordability”.

“Tax policy should therefore be considered as one element within a broader housing policy framework.”

Research by the Australia Institute has shown there are three simple tax reforms that would raise an extra $70 billion a year without hurting low or middle-income Australians.

They include a 2 per cent wealth tax on people worth more than $5 million, the reintroduction of an inheritance tax and scrapping the capital gains tax discount.

“Australia is a low-tax country that does not do a good job of taxing wealth. It is one of the few developed economies in the world which has neither a wealth tax nor an inheritance tax,” said Matt Grudnoff, senior economist at the Australia Institute.

“Correcting this would raise huge amounts of extra revenue for essential services and ease growing inequality in Australia.

“And it’s time to scrap the capital gains tax discount, for many reasons. Not only would it put downward pressure on house prices and reduce inequality, it would raise an extra $19 billion a year.”

Welfare advocates have also long argued that the CGT discount is unfair.

Analysis by the Australian Council of Social Service (ACOSS) found just ten of Australia’s richest electorates receive a third of the CGT discount’s benefits, which costs the country about $20 billion a year.

“With all the evidence before it, there is no excuse for the government to ignore the generational opportunity for reform in this budget,” ACOSS CEO Cassandra Goldie said.

“It must act to curb unfair tax arrangements like the CGT discount, negative gearing, and discretionary trusts, and invest the savings in essential services and supports like boosting social housing and income support.”

However, the Coalition maintains the CGT discount is “working as intended.”

Liberal committee members Senators Andrew Bragg and Dave Sharma issued a dissenting view opposing any change, stating, “The idea that Australia’s housing woes could be solved by one tax tweak is as shallow as it is cruel”.

They described the majority report as a “simplistic and one-dimensional analysis … which sidesteps the biggest factor in the housing system—supply”.

“Supply of housing has collapsed in Australia as the population has surged.”

However, Australia Institute co-CEO Richard Denniss countered that claim, noting, “Australia has more houses and apartments — in absolute terms and per person — than we did in the 1960s.”

He said that between 2001 and 2021, the population grew by 34 per cent, while the number of dwellings increased by 39 per cent.