The NSW government is calling for a reevaluation of the capital gains tax (CGT) discount to address the issue of housing affordability. According to the government, the current generous CGT rules have led to a surge in property prices, negatively impacting first-time buyers. The NSW Treasury has revealed that tax concessions, including negative gearing, are distorting incentives towards property investment, undermining policies aimed at assisting first-home buyers.
The federal parliamentary inquiry, led by Greens treasury spokesperson Nick McKim, is examining the 50% CGT discount. This inquiry, closely watched by the Albanese government, may intensify pressure on the Labor Party to reconsider the discount before the next election. Officials estimate that the CGT discount costs the federal budget approximately $23 billion in lost revenue, with NSW contributing around $8.7 billion.
The submission highlights that the CGT discount amplifies investor purchasing power, exacerbating housing affordability issues. By reducing the effective tax rate on capital gains and allowing tax deferral, the discount increases after-tax returns for investors, enabling them to bid more aggressively. Introduced by the Howard government in 1999, the 50% CGT discount applies to any investment held for over 12 months.
The inquiry also reveals that lending to housing investors has significantly increased compared to lending to first-home buyers since the discount's introduction. In the mid-1990s, lending to investors was similar to that of first-home buyers, but by September 2025, investor lending had soared to $139 billion, while first-home buyer lending reached only $64 billion. The ability to access the CGT discount through investment vehicles, such as trusts, further widens the tax system's inequality.
McKim supports the submission, emphasizing the need to wind back the CGT discount to address rising house prices, speculation, and the unfair distribution of billions to wealthy investors. The Greens' Senate inquiry aims to address the overwhelming evidence of the unfairness of this tax break.
However, the federal treasurer, Jim Chalmers, has ruled out changes to CGT or negative gearing rules. The Property Council of Australia argues against viewing CGT discount changes as a solution to housing affordability, advocating for a national review of property-related taxes and regulations instead. They claim that such changes would reduce new housing construction and drive up rents, exacerbating rental shortages and their impact on employment and the economy.
The CGT inquiry is set to hold public hearings and present its final report by March 17th.
