What the tax reform duo could mean for renters

Changes to CGT and negative gearing have renters worried that prices will increase. (ABC News: Glenn Mullane) Link copiedShareShare articleThe federal government is expected to use next week's budget to wind back negative gearing and the capital gains tax (CGT) discount, two taxation instruments favoured by property investors. It is an idea that featured in Labor's failed 2019 campaign. However, there has long been speculation about its revival. Now, the ABC has confirmed the taxes would form the centrepiece of a budget targeted at young voters. But Australia's biggest industry groups, economists and housing policy experts caution that any changes made may inadvertently push rents higher. So we spoke to three experts who explained, in theory, what any housing tax policy changes could mean for renters. Over the past few months, the federal government has laid down the groundwork for changes to the CGT discount and negative gearing concessions in its federal budget next week. When asked last Tuesday about the changes, Prime Minister Anthony Albanese said the issue of intergenerational equity was important. "In Australian society, what we know is that for many young people, they feel like they haven't got a fair crack compared with my generation and the generations beforehand," Mr Albanese said. The ABC has since reported that there would likely be full grandfathering for negative gearing, but partial for the CGT discount. Here is a breakdown of how they work and the expected changes. Negative gearing is when investment property owners operate at a loss, typically because the mortgage payments and other costs are higher than the rental income. They then deduct that loss from their overall taxable income to reduce their income tax payable. Negative gearing changes are expected to be fully grandfathered, according to several sources. But it is unclear whether the policy will cap the number of negatively geared properties, limit negative gearing to newly built properties, or phase it out entirely in future. Capital gains tax is paid when an investment property (or share) is sold, with the gain currently taxed at 50 per cent of a person's ordinary tax rate. The "gain" is the amount an asset has increased in value since it was purchased, with some adjustments. The CGT discount is likely to be reverted to the pre-1999 scheme, which made the discount equal to the amount of inflation over the life of the asset, but Labor may also consider a flat discount such as 25, 30 or 35 per cent. An important design question is whether the policy will be fully grandfathered, so that the old rules are retained indefinitely for all existing assets, or whether there will be some transition to the new rules. Grandfathering (or a grandfather clause) is a provision where an old rule continues to apply to existing situations while a new rule applies to all future cases. Some experts say the tax changes could stall the supply of new rental homes at a time of surging population growth due to migration. Recent modelling commissioned by property lobby groups showed new home building would slow and rents would rise under a range of scenarios. Modelling for the property industry by economic firms Qaive and Tulipwood Economics found that combining a CGT discount cut with negative gearing restrictions could slash dwelling starts — housing construction — by tens of thousands of homes, pushing rents 2.4 per cent higher by 2029-30. But the view among economists is that price rises won't be "supercharged". PRD chief economist Diaswati Mardiasmo told the ABC rental prices won't rocket to the likes of what we saw post-COVID. "We saw rents supercharge post-COVID by 20-25 per cent because there were no investors playing in the market and there were a lot of people trying to find a rental property," Dr Mardiasmo said. "I don't believe we will see prices increase to that extent." Robert Carling, a senior fellow in economics at the Centre for Independent Studies, shared a similar view. "Winding back negative gearing will make investment in rental housing less attractive, the supply of such housing will decline, and rents will increase," Professor Carling told the ABC. "However, I would not expect large effects from the kinds of changes that are rumoured." Cotality's Rental Review Q1 2026 shows national dwelling rents increased 2.1 per cent over the three months to March, up from a 1.2 per cent increase in Q4 2025. The median weekly rent for homes across Australia's capital cities is $724 per week. Across the regions, the median rent is $612. Curtin University economics professor Rachel ViforJ says for every investment property that is sold by landlords, that is one extra property available in the market for purchase by aspiring homebuyers. "Even if rents rise in the short run, over time it should fall or stabilise as more people are able to buy their own homes," Professor ViforJ told the ABC. Dr Mardiasmo says whether w

What the tax reform duo could mean for renters

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