Treasurer Jim Chalmers declines to rule out capital gains tax changes in upcoming Budget

The Federal Government could potentially revisit changes to capital gains tax concessions in the upcoming Budget after Treasurer Jim Chalmers declined to rule out such reforms to tackle Australia’s housing affordability crisis.

Labor has been opposed to tinkering with the 50 per cent capital gains tax discount since losing the 2016 and 2019 elections with a plan to dilute the concession for those selling an investment property.

But Dr Chalmers has sparked speculation of changes being announced in his May 12 Budget after highlighting the need to address intergenerational inequality.

“Any further changes to taxes, beyond those which 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 told reporters on Wednesday.

Former Treasury economist Chris Richardson said this answer was a sign Labor was looking to revisit capital gains tax concessions in its next Budget, despite Prime Minister Anthony Albanese ruling out any policy changes in Opposition.

“The politicians are out today playing a straight bat on whether the May Budget will include changes to the tax treatment of capital gains,” he said.

“And that, ladies and gentleman, tells you that it’s finally happening … otherwise the denials would be flowing thick and fast.”

Greens senator Nick McKim is chairing a Senate committee on the capital gains tax discount, with a final report due by March 17.

Should Labor change its mind, the Government could rely on the Greens to get changes to the capital gains tax discount through the Senate.

While the Greens want the 50 per cent capital gains tax discount scrapped, some Labor MPs want the concession to at least be diluted, arguing it was locking young people out of the housing market.

What was a brewing housing crisis seven years ago was now a full-blown one, a Federal Government backbencher told The Nightly, adding that grandfathering capital gains arrangements for people who already owned a couple of investment properties could make the change more electorally palatable.

The Australian Manufacturing Workers Union, aligned with Labor’s Left faction, wants an end to the capital gains tax concessions, grandfathered for two years, along with negative gearing enabling investors to claim rental losses on tax.

“The combination of a generous negative gearing scheme with the CGT discount has distorted the housing market in favour of wealthy and speculative investors,” it said in a submission to the Senate inquiry.

Since September 1999, a landlord who made a $100,000 profit on a property held for at least 12 months had only had to declare $50,000 of that gain on their tax return.

Former Labor leader Bill Shorten went to the 2016 and 2019 elections with a plan to halve that 50 per cent discount to 25 per cent which would have meant someone making a $100,000 gain on a property would have to declare $75,000, instead of $50,000, of that increase on their taxable income.

The Coalition introduced the 50 per cent capital gains tax discount under former Liberal prime minister John Howard and has continued to oppose diluting that concession.

“It’s what happens when you have a Labor government that’s running out of money and they just want to come after more. What do they do? They tax people. That’s my response,” shadow treasurer Ted O’Brien told Sky News on Wednesday.

“We are not going to be joining with Jim Chalmers on trying to ping Australians for more money, because he can’t stop his spending spree. That’s his motivation.”

Westpac chief economist Luci Ellis last year proposed replacing the 50 per cent capital gains tax discount and simply indexing the capital gain for inflation at a fixed rate of 2.5 per cent a year. Before the CGT discount, capital gains from 1985 to 1999 were indexed for inflation for the period an investment property had been owned.

Former Labor industry minister Kim Carr, who was a powerbroker in the Left, has previously told The Nightly the 50 per cent capital gains tax discount needed to be reviewed given the surge in house prices since COVID.

Labor for Housing co-convener Julijana Todorovic has called for the capital gains tax concession to be removed on investment properties.

Australia’s median house price soared by 10.2 per cent in the year ending on January 31 to an even more unaffordable $993,817, Cotality data showed. A working couple with a 20 per cent deposit would need to earn $159,000 between them to even get a mortgage.

The median house price in every capital city is beyond the reach of the average, full-time worker earning $104,520 and buying on their own.

While the capital gains tax doesn’t apply to a home someone is living in, younger people with careers in a big city are often restricted to buying an investment property in a more affordable market to get on the housing ladder.