CANBERRA — Most young Australians would be better off under Labor’s plan to scale back negative gearing and the capital gains tax discount, according to fresh Treasury distributional modelling that hands the government a politically potent line as it tries to push the contested reforms through parliament.
The analysis, reported on Thursday, breaks down the winners and losers of the budget measure by age and income, and finds the gains skew heavily toward people under 40, who hold few investment properties and stand to benefit from a tax system tilted back toward owner-occupiers. The losers are concentrated among older, higher-income earners who dominate the ranks of property investors.
The modelling underpins the centrepiece of Treasurer Jim Chalmers’ fifth budget, delivered on May 12. From July 1, 2027, the government will limit negative gearing to new builds and replace the flat 50 per cent capital gains tax discount with a discount based on inflation, alongside a minimum 30 per cent tax on gains. Properties held before budget night are grandfathered, and the capital gains changes apply only to gains that accrue after the start date, according to the budget papers.
Chalmers has framed the package as a generational rebalancing. He told parliament that house prices have risen more than 400 per cent since 1999, more than twice as fast as average incomes, and said the changes would help about 75,000 Australians into home ownership. The Treasury numbers give that argument a distributional spine: the people the policy is designed to help are, on the government’s figures, the people it actually helps.
The reform attacks a tax structure that has long favoured leveraged property investment. Negative gearing lets investors deduct rental losses against wage income, a feature that is unusual by international standards and one that rises in value with the investor’s marginal tax rate. The capital gains discount, introduced by the Howard government in 1999, halves the tax on profits from assets held longer than a year. Together they have channelled a disproportionate share of the benefit to high earners, with the top income bracket capturing the largest slice.
Under the new settings, future investors who buy established homes will still be able to deduct losses against rental income and carry forward unused losses, but they will no longer offset those losses against their salaries. Investors who buy new builds keep the more generous treatment, a carve-out designed to steer capital toward fresh supply rather than bidding wars over existing stock. The Australian Taxation Office has confirmed the measure is not yet law and is intended to take effect in 2027, per official guidance.
For the government, the age breakdown is the argument it has been waiting for. Younger renters and aspiring buyers carry almost none of the cost of winding back the concessions because they own almost none of the assets that benefit from them. The Treasury work lands as the government defends the plan against a Coalition that has vowed to repeal it, an early test of whether Labor can hold the political centre on a reform that sank the party in 2019. The same fight has played out in recent days, with Labor defending the capital gains tax overhaul as the opposition pledged to block it.
The opposition’s counter is that the modelling understates the second-round effects. Critics argue that thinner investor demand will shrink the rental pool and push rents higher, hurting the same young renters the policy is meant to help. Treasury has estimated rents would rise by roughly $2 a week, a figure property industry figures dismiss as wildly optimistic. Some agents have warned of double-digit rent increases as landlords pass on the loss of deductions.
House prices are the other contested variable. Treasury maintains prices will not fall, and Chalmers has said the aim is not to target a price but to widen the field of affordable options. Independent economists are split. Andrew Lilley, chief interest rate strategist at Barrenjoey, has put the likely hit to prices at 1 to 4 per cent, a modest drag that would do little to dent a national median that has passed $1.3 million. Others argue chronic undersupply, a growing population and high construction costs will keep prices climbing regardless of the tax change.
That tension runs through the whole debate. The accounting body CPA Australia has cautioned that changing the concessions in isolation risks unsettling investment without fixing the underlying problem, pointing to Treasury’s own evidence that the core issue is that Australia is not building enough homes. Economists across the spectrum tend to agree that tax reform without a step change in supply will move prices and rents only at the margin.
Investors made up close to 40 per cent of new housing loans in the December quarter, near double the share going to first-home buyers, which helps explain why the politics are so charged. Wind back the concessions and, in theory, first-home buyers face less competition for the same homes. Whether that translates into more keys in more hands depends on supply, the variable the budget addresses through a record $47 billion housing investment but cannot fix overnight.
For now, the distributional modelling gives Labor a cleaner story to tell than it had in 2019, when the same broad policy was framed as a tax grab. This time the government can point to a Treasury ledger that puts most younger Australians on the winning side of a system that has, for a generation, worked against them. The harder question, of whether the reform meaningfully shifts who gets to own a home, will not be answered until well after the measure takes effect, if it survives the Senate at all. The broader budget already marked a sharp turn away from the old economic consensus, and the housing tax fight is where that turn meets its sternest test.
