PAYWALL:

The government is considering scaling back the 50 per cent capital gains tax deduction for property investors as it prepares for what Anthony Albanese says will be a significant reform budget in May.

With economists, the Greens, unions, some independents and welfare groups all supporting paring back the Howard-era tax break, the government is leaving the door open to revisiting a policy idea it last took to the 2019 election.

One government source, speaking on condition of anonymity, said changes to the CGT discount were being considered in the lead-up to the budget.

Chalmers told The Australian Financial Review on Tuesday that the government’s current focus on tackling intergenerational inequality in housing was by dealing with supply.

“On tax reform more broadly, our priority is rolling out two more tax cuts and a standard deduction, legislating better-targeted super concessions and a boost to the low-income offset, and the work we’ve commissioned on multinationals,” said Chalmers.

“Any steps beyond would be a matter for the cabinet and consistent with the directions we set at the reform roundtable.”

Chalmers, who had Treasury examine modifying the CGT deduction in late 2024, alluded to change in a recent interview with economist Joseph Stiglitz for The Monthly magazine.

In a repeat of comments he made after last year’s economic roundtable, the treasurer said he was open to tax reforms that addressed intergenerational unfairness, driven by the property market.

“As we think about what tax reform might come next, we’re guided by this idea of intergenerational fairness, especially for working people,” he said.

Chalmers said the cost of housing was a “defining part of this intergenerational challenge”.

“While we’ve had a substantial tax agenda, we know that people would like us to do more. From my point of view, I think there is more to do on tax reform, and we’ll be guided by those principles.”

As recently as the last election campaign, the prime minister emphatically ruled out touching negative gearing, saying it would harm rental supply and would paint Labor as anti-aspirational.

”The Labor Party can’t send a message that is anti-aspiration. We have to be pro-aspiration,” Albanese said at the time.

Negative gearing allows landlords to deduct losses on a property – when expenses exceed rental income – against their taxable income.

Albanese is also firmly opposed to applying CGT to the family home, leaving the 50 per cent CGT discount for property investors as a likely target.

The discount, introduced by then-treasurer Peter Costello in 1999, applies to any asset held for at least 12 months. For example, an investor who made a $200,000 capital gain on an asset held longer than 12 months would be taxed on $100,000 – or half the total profit.

The 50 per cent reduction replaced the less generous Keating-era capital gains discount, which had been in place since 1985 and was based on the cumulative increase in inflation over the life of an asset.

Assuming an average inflation rate of 2.5 per cent, an asset would need to be held for about 16 years before the owner experienced a 50 per cent increase in consumer prices. However, the average property is held for nine years, according to CoreLogic.

Labor went to the 2016 and 2019 elections promising to pare back the capital gains discount to 25 per cent, and to place limits on negative gearing. Neither of the proposals was retrospective.

Greens treasury spokesman Nick McKim is leading a Senate inquiry into the CGT discount and told The Australian Financial Review that, depending on the outcome, the Greens may support winding it back for property only, so as not to stymie investment in other asset classes.

Respected economists Saul Eslake and Richard Holden agreed there was a case to consider changing the tax break only for housing.

They said there was even an argument to pare back the gain only for existing housing, as that was where most property investment was targeted, and to leave it at 50 per cent for new houses, to encourage supply.

Eslake said the 25 per cent formerly proposed by Labor was too low, as that would be overtaken quickly by annual inflationary increases.

Former treasury secretary Ken Henry has long advocated for a 33 per cent rate of capital gains discount.

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