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A return to the original way of taxing capital gains on property under the Hawke and Keating governments is firming as a centrepiece of the May budget as Treasurer Jim Chalmers prepares the final shape of his fiscal blueprint.
This masthead can reveal that Chalmers is leaning towards a return to the pre-1999 system rather than reducing the current 50 per cent discount on capital gains, which critics claim contributed to a surge of property investor activity and pushed prices out of the reach of young home buyers.
The move would likely deliver a small increase in tax and dampen investor activity, which has accelerated to record levels in those parts of the property market dominated by first-time and low-income owner-occupiers.
Chalmers is promising a tax package in the May 12 budget with a focus on “intergenerational equity”. Earlier this month, Prime Minister Anthony Albanese said the government would back people who work hard with a particular focus on the “great Australian aspiration of home ownership”.
Reform of the capital gains tax (CGT), alongside fresh incentives for housing construction, have been on the government’s radar since last year’s economic roundtable. That has been amplified by a Greens-led Senate inquiry into the tax, which argued the CGT concession had contributed to the nation’s housing crisis.
Among numerous possible changes, senior Labor Party sources not in a position to speak publicly have told this masthead that a return to the original CGT system is now the government’s preferred position.
When treasurer, Paul Keating introduced capital gains tax, which applies to all assets, including property and shares, in the mid-1980s overhaul that included cuts to personal and income taxes.
Under the original CGT, the value of assets was adjusted for actual inflation, with the tax applied only to the “real” jump in value. This required people to track inflation from the time they bought an asset until it was sold.
This was replaced by Peter Costello in 1999 with the current 50 per cent tax discount on capital gains, introduced in a bid to make Australia more attractive to investors, particularly for the share market.
It was aimed at attracting more investment in equity markets, but critics claim the way the discount interacted with negative gearing made it a huge incentive for property investors. In a period of low inflation, the discount was so large that it delivered substantial windfall gains to asset holders.
Before the change, most landlords were positively geared; afterwards, the majority were negatively geared.
A return to the Keating-era regimen would raise some extra revenue, but would be unlikely to deliver a huge financial windfall.
Under the current CGT system, a person who made a $750,000 capital gain – for example on the sale of an investment property bought for $1 million in 2015 and sold for $1.75 million in 2025 – would pay tax on $375,000. On the Keating-era calculation, the same investor would pay tax on about $420,000 of their capital gain.
There were concerns that another option, reducing the concession from 50 per cent to 30 per cent, might unleash a scare campaign from the housing sector, which has claimed that any change to the CGT concession will push up prices and reduce home construction.
There appears to be popular support for a change to CGT.
A Resolve poll taken between April 13 and 18 found 42 per cent of the 1807 respondents backed a reduction in the 50 per cent concession. Opposition was just 9 per cent, while 39 per cent were unsure.
It remains one of the better supported tax changes open to Chalmers, alongside an overhaul of negative gearing (43 per cent), an increase in taxes on mining companies (51 per cent) and lifting taxes on banks (54 per cent).
Chalmers, who spent part of last week at International Monetary Fund meetings in Washington, is weeks away from releasing what the government argues will be its most important budget since taking office.
In coming days, it is to decide on spending cuts, tax reform and policies aimed at boosting productivity.
Before those decisions, almost 30 interest groups representing businesses, agriculture and the university sector have made a last-ditch call on Chalmers to slash red tape.
The groups, representing firms that employ millions of people, want the government to commit to a 25 per cent reduction in “unnecessary regulation” by 2030.
Business Council chief executive Bran Black, citing cases of burdensome red tape around the country, said cafe owners in Victoria require up to 37 separate licences before opening, while a Queensland plumber has to pay hundreds of dollars in permits to repair a tap in NSW.
“That kind of red tape adds cost, slows things down and makes it harder to keep goods moving and shelves stocked. With global volatility already pushing up prices, cutting that duplication would help bring down costs for Australian households and businesses,” he said.
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.From our partners
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