Federal Budget 2026: Examining the Impact of Negative Gearing and CGT Reforms on Homebuyers

An economist has expressed skepticism over a government initiative aimed at reforming tax incentives for property investors to encourage home ownership, suggesting it may fall short of achieving the desired impact.

In the 2026-27 federal budget, the government contends that current tax policies have worsened housing affordability and skewed the market in favor of investors. The intention is to shift this dynamic and foster a more balanced housing market.

To address these issues, the government has introduced measures such as restricting negative gearing benefits exclusively to new constructions and replacing the capital gains tax (CGT) discount with an indexation approach. These steps are designed to recalibrate the property investment landscape.

Additionally, the government has moved to eliminate a tax loophole exploited by family trusts, imposing a minimum capital gains tax rate of 30 percent. This aims to ensure a fairer tax contribution from property investors.

Officials anticipate that this comprehensive set of reforms will help counteract the decline in home ownership seen over the past ten years, potentially bringing 75,000 more owner-occupied homes to the market over the next decade.

EY Chief Economist Cherelle Murphy told SBS News that this is a “step in the right direction”.

She said the government is banking on the theory that fewer incentives for investors will lead to more opportunities for first home buyers, but doubts that it will have a major impact.

“The foundations are there, but it’s not going to move the dial,” she said.

There have been 630,242 home loans for first home buyers over the last five years, according to the Australian Bureau of Statistics.

“I don’t think that the changes are big enough in themselves to show a significant change in the affordability of housing for first home buyers,” she said.

Treasury modelling estimates that house price growth will temper, increasing by an average 4 per cent instead of 6 per cent, for a couple of years due to the changes

“That means that the homeowners will be able to get into the market at a slightly lower price than they would otherwise,” she said.

“However, it doesn’t take house prices backwards, so it doesn’t actually make affordability any easier. It’s just a less bad outcome … it’s not necessarily fixing the problem.”

One Nation MP Barnaby Joyce labelled the suggestion that the changes would make first homeowners more likely to enter the market a “fallacy”.

“As far as you go with houses, this fallacy that there are a range of people out there only renting because they wanted to,” he told the ABC’s Insiders program on Tuesday night.

“[That] they are undercover first home buyers and renting because they wanted to. Now they brought in the change, they will become first home buyers. No, they won’t.”

Renters ‘dealing with scraps’

Chels Hood Withey, a 30-year-old renter from Mullumbimby, said the budget measures are like “dealing with scraps”.

The housing advocate and founder of House You had hoped for a “reset” and was particularly frustrated by the grandfathering of negative gearing.

“That obviously isn’t going to shift the dial or change investor behaviour for a bunch of people who really are, what we would say, the drivers in this housing crisis,” they told SBS News.

“They’re what we call the house hoarders who have pushed rents up, locked people out, and massively increased house prices to the point where young people can’t afford a home.”

They said the tax system needs to be equitable and fair, taxing wealth instead of those who work hard.

“Not only are they paying rent or crazy mortgages, but then they’re also subsidising someone to have 10 houses,” they said. “That’s not a fair system.”

They added that a complete scrapping of negative gearing and CGT could have been redirected to public housing, giving more people “stable, secure and accessible” housing.

Will the tax changes pass parliament?

Changes to CGT and negative gearing were central to Labor’s unsuccessful 2016 and 2019 election pitches, and the party fervently denied they were on the cards in the lead-up to the 2025 election.

With the Coalition attacking the changes as a “broken promise” that will hurt Australia, to pass the raft of tax changes, the government will seemingly need Greens and crossbench support in the upper house.

On Tuesday night, Greens leader Larissa Waters said the budget only “tinkered” with tax reforms, criticising the grandfathering of negative gearing as “baking the inequality in”.

“This was a real opportunity for the government to step up and help people, and instead they’ve delivered a budget that simply feathers the nest of wealthy corporations and the 1 per cent,” she said.

However, Waters stopped short of explicitly stating whether the Greens would pass the changes in Labor’s proposed form or request further amendments as a condition of her party’s support.

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