Why Chalmers will rein in the property free-for-all in tonight's budget

Jim Chalmers's 2026 budget will include changes to tax concessions that could prove unpopular with many. (ABC News: Matt Roberts) Link copiedShareShare articleThere's a point where the momentum takes over. After being rejected twice by an electorate that didn't want to give up lucrative tax arrangements for property, the Albanese government has sniffed the breeze and decided the time is ripe for change. When the federal budget is released tonight, negative gearing will be curbed and the capital gains tax (CGT) discount will be overhauled. There will be plenty of attacks pointing out that the prime minister specifically ruled out the changes at the last election and has therefore broken an election promise. But the mounting pressure over housing and the burden it has placed on younger Australians has reached a point where many believe it is no longer acceptable to simply turn a blind eye. Since the turn of the century, Australian real estate values have soared to extraordinary levels, saddling would-be first home buyers with debts that, in many cases, will not be repaid by the time they retire. But the bigger concern is the impact on Australian society. Most of us, perhaps naively, like to believe this is an egalitarian country where hard work and ambition, rather than your background, determine your future. Real estate has changed all that. Over the past few years, it has become apparent that the only way many younger Australians can afford to put a roof over their heads is if their parents have stumped up the cash for a deposit. That's rapidly transforming us into a class-ridden society where the landed gentry rule. If you weren't born into property, you'll never own it. Homes in Australian capital cities such as Hobart are now unaffordable for many young people. (Unsplash: Gino Marcelo Hernandez Sanchez) Handouts are easy. Reeling them back in, even when they've gone too far, can be nigh on impossible. Paul Keating abolished negative gearing way back in 1985 but reversed the decision in 1987, after a highly effective scare campaign from the property industry erroneously claimed the decision had caused rents to soar. Negative gearing allows investors to write off annual losses — if the rental income doesn't cover the interest bill and other costs — against their other income. Like all tax breaks, the more money you earn, the greater the benefits you stand to reap. But it's helped transform the simple human need of providing shelter into an Australian obsession, a casino where the house always wins. We want to know what issues matter to you ahead of the federal budget. Have your say. The Parliamentary Budget Office found that 80 per cent of the benefits from the capital gains tax discount accrue to the top 10 per cent of salary earners, while 60 per cent of the benefits of negative gearing find their way to the top 20 per cent. Back in Keating's day, investors bought existing houses 90 per cent of the time, prompting his quip that they were simply "swapping flats on Bondi Beach" and hence did little to expand the rental stock. Things haven't changed much now. According to economist Saul Eslake, negatively geared investors overwhelmingly buy existing houses, often targeting lower-priced homes that are the normal terrain of first home buyers. "Negative gearing does nothing to increase the supply of housing, since the vast majority of landlords buy established properties," he says. "Precisely for that reason, it contributes to upward pressure on the prices of established dwellings, thereby diminishing housing affordability for would-be home buyers." According to Australian Taxation Office numbers, only around 23 per cent of negatively geared investors buy new homes. Keating also introduced a capital gains tax to broaden the tax base and ensure those earning a living from trading assets paid tax alongside ordinary workers. You were taxed on the profit from your investment after inflation was stripped out. But in 1999, Peter Costello changed that. To simplify the system, the discount was upped to a flat 50 per cent, regardless of how inflation had performed, for anyone who held an asset for more than 12 months. You only paid tax on half your earnings. And here's what happened to the price of Australian real estate. The trend goes sharply higher almost immediately after the changes to CGT in 1999. Other factors helped too. Interest rates, having fallen sharply throughout the 1990s, maintained a downward trend while a big step up in immigration fuelled demand, and the resources boom fired up national income.

Why Chalmers will rein in the property free-for-all in tonight's budget

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