Growing debate over the CGT discount removal

It is one of the most hotly contested decisions to take the spotlight for the Australian property market right now.

The Albanese Government faces mounting pressure over speculation it will axe the capital gains tax (CGT) discount.

While housing advocates hail the opportunity to scrap the discount as a “once-in-a-generation chance” to make housing fairer for all Australians others are debating this will have an impact on the most vulnerable.

Reports suggest Treasurer Jim Chalmers is considering returning to the original way of taxing capital gains on homes instead of reducing the current 50 per cent discount on capital gains.

Rethink Investing Group Founder and CEO Scott O’Neill said the changes, if implemented, would have a heavier impact on mum and dad-type investors but do little to discourage activity from cashed-up institutional investors.

He said the biggest impact would be on smaller investors and residential investors trying to build wealth into larger portfolios.

“The debt is not going to be paid off as quick when there is a little bit less capital gains to be enjoyed,” he said.

“It always affects those who can least afford it.

“Those who have massive portfolios and big businesses – its very different for a middle income family who has only one asset and maybe only one investment property and now has $100,000 extra tax potentially.”

Mr O’Neill added that those hoping for the CGT changes to improve housing affordability may be disappointed.

“There’s obviously record high prices and record low yields and the combination of those two things will create a bit of an opportunity for stagnation in prices but I don’t think we will see falls because there is still an undersupply constraint across the country.”

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Kent Lardner, head of research at property analytics firm FoundIt, said CGT changes may stop mum and dad investors from buying, but experienced, cashed-up investors would continue to buy homes.

Finance Brokers Association of Australia (FBAA) say the proposed changes, reportedly to combat “intergenerational inequity” by forcing more investors out of the market and making housing more affordable for younger Australians, will have the opposite effect.

FBAA CEO Peter White AM said less rental properties can only drive up rental prices which have already risen significantly across Australia over recent years.

“While I commend the government for wanting to open up more housing, these changes will disadvantage the very people it seeks to help – younger Australians, as well as many other people on lower incomes,” Mr White said.

“The theory that this will drive down the cost of housing to the extent where someone who can’t currently afford to service a mortgage and enter the property market, will suddenly be able to, is overly simplistic and ignores the many other factors in loan approval.”

The FBAA’s 2023 ‘Australian mortgage and rental affordability survey’ conducted by research firm McCrindle found that even before today’s higher rental rates, those renting had to take on additional work, cut back on groceries and sell assets to afford the increased rental prices at the time.

It also reportedly found more than half of those renting had experienced higher stress, with others feeling socially disconnected and reporting increased family tension.

The association believes the only result of any move to disincentivise investors, including those who own multiple properties, will be to increase the cost of living for anyone who rents.

“Someone renting with the aim of buying a home won’t be able to save a deposit as easily, while many who are renting because they are already doing it tough will struggle to meet the increased repayments,” Mr White said.

He also pointed to the current shortage of rental properties.

“In many parts of Australia, there are 10 to 20 people or more looking at one rental property such is the lack of availability now, so why would we reduce that supply even more?”

Other groups have welcomed the CGT changes.

National housing campaign Everybody’s Home says it is encouraged by reports the Albanese Government is leaning towards scrapping the capital gains tax discount on property and returning to the pre-1999 system.

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Everybody’s Home spokesman Maiy Azize said this would be a turning point for housing affordability and fairness.

“Scrapping the CGT discount would be one of the most positive steps any government has taken on housing in a generation,” Ms Azize said.

“We are really encouraged by media reports that the federal government is looking to end the CGT discount and return to a much fairer system.”

Ms Azize said the CGT discount and negative gearing are fuelling the housing crisis with billions of taxpayer dollars lining the pockets of property investors every year while first home buyers are locked out and renters are stretched to breaking point.

“The government continues to say it wants to improve intergenerational equity and the housing crisis, so it makes sense to cut the property investor tax breaks that are making both of these things worse, and use the savings to build homes that are affordable,” Ms Azize said.

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“The property lobby will cry that scrapping investor tax breaks will push up prices and choke supply.

“But they have a vested interest to resist reforms that would make housing more affordable.

“Australians aren’t buying the property lobby’s spin.

“They know investor tax breaks are unfair and make the housing crisis worse.”

Ms Azize said Aussies tell their campaign every day how desperate they have become with renters pushed to the edge, first home buyers locked out of the market and parents who are worried about their kids’ futures, as well as landlords who know the system is “cooked”.

“This is a once-in-a-generation chance to make housing fairer for all Australians,” she said.

“We, alongside millions of Australians, are urging the government to take it.”

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