Australia is poised on the brink of another intense debate over its tax system, as Treasurer Jim Chalmers sets his sights on reforming the capital gains tax (CGT) concession. This move is part of a broader strategy to address “intergenerational equity” within the federal government’s financial framework.
The announcement comes as Chalmers, a veteran of previous tax reform skirmishes, prepares for what is being dubbed the Capital Gains Tax Pincer of 2026. The proposed changes have already sparked fierce debate among stakeholders, reminiscent of past tax battles, such as the GST War of 1998-2000 and the Franking Credit Dogfight of 2019.
Historical Context and Current Concerns
Capital gains tax was first introduced into Australia’s income system in 1985 by then-Treasurer Paul Keating, as part of a comprehensive reform package. The aim was to broaden the tax base and reward innovation and hard work. The CGT, along with the fringe benefits tax, helped fund reductions in personal and corporate income taxes.
A decade later, the system was simplified under Peter Costello, who adopted recommendations from the Ralph Review to offer a flat 50% concession on capital gains for assets held over 12 months. This was intended to invigorate the Australian equities market, though its impact on the property market was largely overlooked.
The Property Market and Economic Implications
Critics argue that the CGT concession has inadvertently fueled a surge in property prices and a rise in negatively geared investments. The concession’s interaction with the property market has been a point of contention, with community organizations warning that Australians would favor real estate over equities.
In 2025, of the 179,000 new mortgages taken out by investors across the country, 83% were for existing dwellings, highlighting the skew towards property investment.
Supporters of the current system claim that global trends, such as falling interest rates, are also responsible for rising house prices. However, the concentration of CGT benefits among the top 10% of income earners has drawn comparisons to historical economic disparities.
Expert Opinions and Potential Reforms
According to a report by independent think tank e61, the CGT concession distorts investment behavior and hampers productivity. The report suggests that reform could lead to a more equitable tax system, though it acknowledges potential short-term impacts such as slight decreases in house prices and increases in rent.
“The tax system is terrible for young people,” noted Bill Kelty at a recent Senate inquiry, emphasizing the need for reforms that benefit younger Australians.
Chalmers’ challenge lies in ensuring that any reform is part of a comprehensive strategy. Simply using the revenue from a reduced CGT concession to fund government services would be insufficient. Instead, the funds could be used to lower the tax burden on workers or to incentivize productivity-enhancing investments.
Looking Ahead: The Path to Reform
The property sector warns that changes to the CGT concession could deter investment in new housing. However, historical data suggests that the introduction of the concession did not lead to a construction boom, raising questions about the validity of these concerns.
The NSW Treasury has identified the CGT discount as a factor contributing to housing affordability pressures, alongside other tax settings like negative gearing.
As Australia braces for this new tax battle, the stakes are high. The outcome could reshape the nation’s economic landscape, potentially offering younger generations a fairer chance at home ownership and economic participation.
Once more into the breach, as the nation prepares for a tax reform that could redefine its economic future.
