Key Takeaways
- Anthony Albanese’s Cabinet is advancing a capital‑gains‑tax (CGT) reform package that aims to satisfy a long‑standing Labor goal while navigating opposition concerns about housing supply.
- The preferred approach under discussion is to retain a more generous CGT discount for newly‑built homes and apply a lower discount to existing properties, a distinction intended to frame the reform as an incentive for new construction rather than a blanket tax increase.
- Influential modelling from the McKell Institute – which proposes a 70 % discount for some new homes and 35 % for old homes – has shaped internal deliberations, though officials stress it is not the final blueprint but signals the direction of travel.
- Treasury analysis suggests the reform’s impact on housing supply will be modest; the McKell scenario estimates an extra 130,000 homes (≈1.2 % boost) by 2030 if fully implemented.
- The Greens are likely to demand the removal of any grandfathering provisions in exchange for their support, a condition Labor may need to accept to secure Senate passage.
- Independent economists acknowledge the proposal is an improvement over the current system but caution that tax tweaks alone will not solve Australia’s housing affordability crisis.
Cabinet Progress on CGT Reform
Anthony Albanese’s cabinet is nearing a decision on a capital‑gains‑tax overhaul that would fulfil a long‑held Labor ambition. While the final package will not be locked until closer to the May budget deadline, ministers have reportedly made substantive progress over the past two weeks. The deliberations are occurring amid heightened uncertainty stemming from the Middle East conflict, which has complicated fiscal forecasting. Nonetheless, senior officials confirm that a tax package is taking shape and that the core debate now centres on how to redesign the CGT rather than whether to change it.
Housing‑Supply Concerns Shape Design
A central consideration for the government is ensuring that any CGT changes do not undermine Labor’s argument that more homes are needed to alleviate the housing crisis. The property industry warns that higher taxes on investors could choke supply, so policymakers are seeking a design that offsets this risk. By differentiating treatment between new and existing dwellings, Labor hopes to claim the reform will stimulate construction rather than deter it, thereby preserving its housing‑supply narrative despite the tax adjustment.
The “How, Not If” Question
A Senate committee report on CGT, authored by the Greens but containing numerous hints about Labor’s intentions, has reinforced the view that the reform’s mechanics are the primary focus. As long speculated, the favoured model is likely to retain a more generous discount for newly‑built investment properties while reducing it for older homes. This approach would let the government argue that the policy encourages fresh building activity rather than simply raising revenue from existing assets.
Two Main Design Options Under Review
Officials are weighing two principal options. The first would keep the current 50 % CGT discount for new builds but lower it for established properties. The second, more ambitious route would make the discount for new homes even more generous than the existing rate—potentially raising it to 70 % for certain new dwellings while cutting it to 35 % for older ones. Both variants aim to create a clear fiscal incentive for developers to add supply to the market.
McKell Institute Influence
The McKell Institute, a Labor‑aligned think‑tank, released a report last year co‑authored by independent economist Richard Holden that proposed exactly this differentiated discount: a 70 % benefit for some new homes and 35 % for old homes. Sources familiar with government thinking say the McKell paper has been influential, serving as an informal “kite‑flying” exercise that illustrates the direction Treasurer Jim Chalmers may wish to pursue. Officials stress that the McKell model is not necessarily the preferred final design but reflects the broad inclination to distinguish new versus old housing to bolster the political case for increased supply.
Alternative Favoured Option Reported
Contrasting with the McKell suggestion, the Australian Financial Review has reported that a 50 % discount for new homes is currently the favoured option within cabinet. This would maintain the status quo for new construction while applying a reduced discount to existing properties—a more modest adjustment than the McKell proposal but still enough to create a differential signal to the market. The discrepancy highlights ongoing internal debate about the optimal balance between revenue impact and housing‑supply incentives.
Historical Labor Position and Projected Impact
When in opposition under Bill Shorten, Labor proposed in 2019 to halve the 50 % CGT discount for all homes and to restrict negative gearing to older properties only. The McKell Institute’s current modelling estimates that its 70 %/35 % split would generate roughly 130,000 additional homes over the next four years, equating to a 1.2 % increase in housing supply by 2030. Professor Holden emphasised that the desire of everyday investors to secure their future through property should be channelled toward meeting national housing‑supply objectives rather than merely preserving tax advantages.
Grandfathering and Political Negotiations
The McKell proposal includes a full grandfathering clause, meaning the new discount rates would apply only to homes purchased after the reform’s implementation. This feature is designed to limit immediate revenue impact and to soften the blow for existing investors, thereby reducing the likelihood of a politically damaging backlash. However, the Greens have signalled they will push for the removal of any grandfathering in exchange for their support—a concession Labor may need to make to secure the necessary Senate votes, given the cross‑bench’s influence on tax legislation.
Perceived Benefits of a New‑vs‑Old Distinction
Proponents argue that treating new and old homes differently could avert a confrontational clash with the property industry, as the reform would effectively function as a tax credit for new construction rather than a broad tax grab. By allowing some homes to be taxed more heavily while others receive a richer discount, the government can frame the change as a targeted incentive. Independent economist Chris Richardson described the approach as “an improvement on what we have,” though he cautioned that tax policy alone is unlikely to be the decisive factor in housing affordability.
Broader Views on Tax’s Role in Housing
Richardson noted that, if the goal were purely optimal taxation, Australia might revert to the pre‑1999 CGT system, which adjusted the discount for inflation‑related gains only. He doubts such a return is politically feasible. While he acknowledges a personal concern with the current CGT discount, Richardson maintains that its overall effect on housing supply is limited. He also criticised the prevalent public belief that tweaking housing taxes and negative gearing will solve affordability, arguing that broader supply‑side measures—such as zoning reform and infrastructure investment—are likely more consequential.
Conclusion: Balancing Revenue, Politics, and Supply
Albanese’s cabinet is therefore navigating a complex matrix: delivering a CGT reform that satisfies Labor’s long‑standing ambition, appeasing wary investors and the property sector, securing Greens’ support, and maintaining a credible claim that the policy will boost housing construction. The emerging consensus leans toward a differentiated discount favouring new builds, though the exact rates remain unsettled. Whatever final design emerges, analysts agree its direct impact on housing supply will be modest, underscoring that tax adjustments must sit within a wider strategy to address Australia’s housing challenges.