Last night’s federal budget announcement delivered a major policy shift by reducing the capital gains tax discount back to its pre-1999 levels and maintaining negative gearing.
These significant changes are slated to take effect starting July 2027.
According to Treasury forecasts, this tax reform is expected to assist approximately 75,000 individuals in purchasing their first home over the next decade. It could also offer a potential savings of around $19,000 for someone buying a home at the national median price over a few years.
Budget documents suggest that this initiative aims to enhance housing affordability and decrease investor demand, potentially leading to a greater proportion of homes being owned by occupiers rather than investors.
Although these reforms are being hailed as the most impactful of the 21st century, experts caution that it may take some time for the benefits of reduced prices and improved market access to be fully realized by prospective first-time home buyers.
Grattan Institute’s economic expert Matthew Bowes said the changes will lead to three per cent higher home ownership rates over a decade as investors are disincentivised to buy a property due to less generous tax breaks and profit when they sell down the line.
“What these tax reforms do is help ensure that first home buyers aren’t being outbid by investors at auctions,” he said.
“Over time, they will mean somewhat fewer investors and somewhat more home owners, and help support home ownership.”
Bowes said the impact of the twin tax reforms on housing affordability will be “relatively small” in the next few years.
“At least to begin with, based on previous estimates of the impact of these kinds of policies,” he said.
Treasury’s numbers also suggest the changes will lead to 35,000 fewer homes built over a decade and a small impact of less than $2 a week for someone paying the median rent.
The government faced a slew of criticisms this morning for breaking an election promise to deliver the tax reforms, including some questions about whether it went far enough to support first-home buyers.
Treasurer Jim Chalmers was asked about whether the tax reforms went far enough if only 75,000 would be helped over 10 years during his post-budget speech today.
He said intergenerational inequity in the housing sector reached a level he was “not prepared to tolerate”.
“It’s worth it for 75,000 Australians who wouldn’t otherwise get a hook in the housing market,” he told journalists at the National Press Club.
“It’s worth the political risk that we’ve taken in coming to a different view and changing our policy position in some contentious areas
“I’d rather do the right thing by those 75,000 people and explain why a change in policy was necessary and own that than to leave this problem for someone else to fix down the track and in the meantime to let this problem get worse.”
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