CGT Discount Faces Senate Scrutiny as Housing Debate Intensifies
Australia’s capital gains tax (CGT) discount will come under renewed scrutiny next week as a Senate inquiry considers whether the 50 per cent concession continues to serve its intended purpose — or entrenches inequality within the housing market.
The review arrives at a moment of heightened fiscal and economic pressure. Housing affordability remains politically sensitive, productivity growth is subdued, and the federal budget looms.
A Broader Reform Conversation
The inquiry, spearheaded by the Greens, forms part of a broader call for productivity-enhancing tax reform.
Business leaders including Rob Scott of Wesfarmers and Andrew Irvine of National Australia Bank have warned that structural reform cannot be indefinitely deferred without risking economic stagnation.
Former Reserve Bank of Australia governor Philip Lowe has similarly criticised fiscal settings that prioritise short-term relief over long-term growth.
The CGT discount has therefore become more than a housing measure — it is now a proxy for the direction of national economic policy.
The Origins of the Discount
Introduced in 1999 under the John Howard government, the 50 per cent CGT discount applies to assets held longer than 12 months, including:
Investment properties
Shares
Managed funds
Certain business assets
Its intent was twofold:
Offset inflation
Encourage long-term investment
Whether it continues to achieve those aims is now the subject of parliamentary examination.
Rental Market Concerns
In its submission, the Real Estate Institute of Australia warned that reducing the discount — particularly if paired with limits on negative gearing — would likely place upward pressure on rents.
The institute noted that approximately 26 per cent of households rent from private landlords. Its position is clear:
Reduced capital incentives may dampen investor participation.
Lower participation may constrain rental supply.
Constrained supply may increase weekly rents.
In a market where vacancy rates remain tight across capital cities, even marginal behavioural shifts could have measurable effects.
Modelling Suggests Limited Impact
However, analysis from the Grattan Institute suggests the rental impact may be more modest.
Its modelling estimates that scaling back the discount could:
Result in approximately 10,000 fewer homes built over five years to 2030
Increase median capital city rents by roughly $1 per week
Reduce property prices by less than 1 per cent
Such findings complicate the narrative that reform would materially destabilise the housing market.
Productivity and Capital Allocation
The Australian Council of Trade Unions argues the discount encourages disproportionate capital flow into established housing rather than productive enterprise.
It supports:
Reducing the discount to 25 per cent for second and subsequent properties
Limiting negative gearing
Implementing grandfathering provisions for existing investors
The underlying concern is structural: capital allocation. If tax settings incentivise passive asset accumulation over business investment, productivity growth may suffer.
Industry Caution
Property industry bodies including the Property Council of Australia and the Urban Development Institute of Australia have cautioned against isolated reform.
Their argument is not necessarily opposition, but sequencing.
They contend that:
Property taxation operates across federal and state jurisdictions.
Piecemeal reform risks distorting investment flows.
A comprehensive cross-asset and cross-jurisdictional review would be preferable.
The Superannuation Dimension
Superannuation funds receive a 33 per cent capital gains discount across asset classes. Industry representatives have warned that altering concessions more broadly could affect institutional participation in residential development projects.
Given the increasing role of superannuation capital in housing supply — particularly build-to-rent — the implications extend beyond retail investors.
The Policy Balance Ahead
With the May federal budget approaching, the government faces a delicate calibration challenge:
Address intergenerational equity
Maintain investor confidence
Protect housing supply
Support productivity growth
Whether CGT reform becomes a genuine catalyst for structural improvement — or merely reshuffles capital allocation between asset classes — remains the central policy question.
The outcome of the Senate inquiry will signal whether Australia is prepared for systemic tax reform or incremental adjustment.
