The federal government is facing calls to reform the generous tax concessions available to property investors in light of its housing targets. Ahead of parliament’s return following Labor’s significant victory in May, the McKell Institute has released a report advocating for modifications to the capital gains tax (CGT) discount.
Currently, a standard 50% discount applies to all investment properties, but the McKell Institute suggests that the discount should vary based on the type of property. They propose increasing the discount to 70% for new apartment developments to stimulate investment in new housing units, while lowering the discount for established homes. Richard Holden, a co-author of the report, highlighted that the present tax framework disproportionately incentivises investment in existing homes rather than boosting the supply of new properties.
Holden acknowledged that many investors aspire to secure their financial futures through property, but he argued that such investment should align with national housing goals. The report posits that implementing these changes could enhance housing supply by 1.2%, translating to approximately 130,000 new units by 2030. Given that the ambitious target of 1.2 million new homes by mid-2029 is already falling behind, Treasury has urged the government to reconsider this aim.
Though co-author Edward Cavanough, chief executive of the McKell Institute, believes that completely eliminating or significantly reducing the current concessions is unrealistic, he emphasised the need to reassess the moral implications surrounding the CGT. Cavanough argued that a pragmatic approach is necessary, as the current unwillingness to rethink CGT settings has obstructed progress in addressing the housing crisis.
He stated that the CGT discount should be tailored to meet social objectives more effectively, suggesting that it should incentivise investments in new dwellings rather than inflating prices in the existing housing market. The proposal aims to be budget-neutral for the first five years, potentially generating an additional $1.4 billion over the next decade.
As Labor has long been cautious about altering CGT and negative gearing policies, Cavanough stressed that it is imperative for the government to reform these outdated concessions to benefit both aspiring homeowners and the wider community. The McKell Institute plans to present its report to the government’s productivity roundtable next month, marking a potential step toward reshaping the discussion around property tax concessions in Australia.