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A reduction in the capital gains tax discount is firming as the expected centrepiece of Treasurer Jim Chalmers’ May budget, alongside a broader suite of reforms including possible tax cuts aimed at helping younger Australians buy their own home.
A senior government source, who asked not to be named so they could detail internal policy discussions, said possible changes to the capital gains tax in the forthcoming May budget were not advanced, but confirmed a change had not been ruled out.
Reducing the concession to 33 per cent from 50 per cent is estimated by Deloitte Access Economics to raise about $4 billion a year in extra tax by 2035-36.
Crucially, the source said Prime Minister Anthony Albanese – who has at times been averse to some of the tax changes pushed internally by Chalmers – had not ruled out changes to the tax.
“The key for housing is more supply, but there are perceptions as well about tax,” one MP said.
“Overwhelmingly, we are looking at supply, but we are also looking at it [CGT] and the budget situation.”
The government is under pressure to use the May budget to both reduce the overall rate of growth in spending and to find ways to lift the pace at which the economy can grow without adding to inflationary pressures.
Changes to the capital gains tax, which is the focus of a Greens-led Senate inquiry due to report next month, have been canvassed within Labor for several months as one way to improve the tax system while helping younger Australians get into the property market.
The extra revenue is likely to be channelled towards reducing taxes in other areas.
The current 50 per cent concession for assets held for at least 12 months was introduced in 1999. At the time, proponents argued it would encourage people to buy shares, boosting Australian publicly listed companies.
Instead, most investors went into property. Before the change, most landlords made money from their investments, but after the concession, most became negatively geared.
This masthead revealed before the 2025 budget that the government had asked the Treasury to model the impact of scaling back negative gearing and capital gains tax concessions, though it later walked away from the proposal.
Labor MP Mike Freelander, who holds the Sydney seat of Macarthur, said that “I have always felt it [the 50 per cent capital gains tax discount] is too generous”.
“I have benefited from it a lot, so it’s a no-brainer to me. There are good economic reasons why it should be wound back a bit,” he said.
“I understand that people worry about the consequences, but I think it should certainly be considered.”
A second Labor MP, who asked not to be named, said that housing affordability “is only getting worse and the impatience of people locked out of the housing market will only grow as more people are locked out”.
“I think people overwhelmingly support us building homes, but structurally, they think that the housing sector is unfair,” they said.
The $4 billion estimate by Deloitte Access Economics is based on reducing the concession for all assets. One option being considered is reducing the concession on property, leaving it intact for other assets, such as shares.
Another option is to cut the concession to 25 per cent, a position Labor took to the 2016 and 2019 elections. Other issues being examined include grandfathering any change to ensure investors who bought an asset under the current law would not be disadvantaged.
One option being canvassed is to increase the size of income tax cuts that are due to start from July 1.
Worth up to $5 a week, the current tax cut is modest, only a little more than the famous “sandwich and a milkshake” tax cuts delivered by the Howard government in 2003.
Chalmers said the May budget would focus on ways to make the economy more productive.
The treasurer, who last week told The Monthly magazine that the inability of young people to buy a home was one of Australia’s defining issues, signalled that further tax reform was on the government’s agenda.
“Any further changes to taxes, beyond those we’ve already flagged, would be a matter for cabinet in the usual way, and would be consistent with the reform directions that we set out after the reform roundtable a few months ago,” he said on Wednesday.
“We’ve made it clear we’ve got other priorities when it comes to tax reform. The focus in tax reform is on cutting income taxes.”
While the Liberal Party has signalled opposition to a change in the CGT, it would probably win support from the Greens, who have long argued the concession encourages speculation by investors in the property market at the expense of young buyers.
Teal independent MP Allegra Spender said Chalmers had to use the May budget to deliver real reform, including changes to the mix of federal taxes and cuts to government spending.
She said policies such as the EV tax deal had to be on the chopping block, while spending growth on the NDIS was still too high.
“Real reform has to have winners and losers. We’re beyond the point where everyone can be a winner,” she said.
The current CGT discount applies to all assets, including shares, cryptocurrencies and those held within superannuation funds.
The Association of Australian Superannuation Funds, in a submission to the current Senate inquiry into the capital gains tax, has warned that removing the 50 per cent discount for super funds would lift the tax payable on all unrealised capital gains from 10 per cent to 15 per cent.
The association said the discount had been “instrumental in encouraging superannuation fund investment across a multitude of key areas across Australia’s domestic economy”.
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.
James Massola is chief political commentator. He was previously national affairs editor and South-East Asia correspondent. He has won Quill and Kennedy awards and been a Walkley finalist. Connect securely on Signal @jamesmassola.01Connect via X or email.From our partners
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