Commonwealth Bank has assessed the potential effects of proposed adjustments to the capital gains tax (CGT) discount and negative gearing on the housing market, suggesting that any resulting decreases in home prices would be minimal. According to economists Luke Yeaman and Harry Ottley in their pre-federal budget analysis, changing these tax benefits would only slightly alleviate house prices and enhance productivity. Their estimates indicate that house prices could drop by around 1.4% with modifications to the CGT discount alone, and potentially by 2% if negative gearing is also repealed.
The economists note that while these changes could lead to improved long-term government revenue and a healthier budget, they would not address the broader housing crisis, particularly as national median house prices surpass $1 million. They stressed that increasing housing supply remains crucial for addressing affordability issues.
Despite claims from critics that CGT discounts and negative gearing contribute to housing market challenges—an inquiry led by the Greens highlighting that these policies favour investors over first-home buyers—Treasurer Jim Chalmers has yet to confirm whether any modifications will be made. He underscored the importance of fairness in the tax system and economy, particularly concerning younger Australians.
Concerns also persist among industry professionals, such as the Finance Brokers Association of Australia, who warn that adjusting these tax benefits may deter investment in the housing market and consequently push rent prices higher. If alterations are enacted, it would mark the first rollback of the CGT discount since it was increased to 50% in 1999 and would also represent a historic shift in negative gearing rules, which were temporarily modified in 1987.
Chalmers has indicated that while the government is exploring options to ease pressure on housing, any discussions regarding tax reforms are part of a broader strategy rather than isolated measures. He has assured that the upcoming federal budget will reflect these comprehensive approaches to improving housing affordability.