Labor Party activists are reigniting a contentious debate over capital gains tax (CGT) policy, advocating for the elimination of the discount on investment properties. This move comes despite Prime Minister Anthony Albanese’s previous assurances to maintain the status quo during his tenure in Opposition. The proposal by Labor for Housing, a grassroots faction within the party, seeks to dismantle the 50 percent CGT discount entirely, a policy first introduced in September 1999.
Historically, the Labor Party has faced electoral setbacks over similar tax reform proposals. Former leader Bill Shorten’s attempts to halve the CGT discount contributed to his losses in the 2016 and 2019 elections. Learning from these defeats, Albanese, upon assuming leadership, ruled out changes to the CGT policy, a stance that did not prevent his electoral success in 2022 and subsequent re-election in May.
Grassroots Push for Policy Change
The current push by Labor for Housing aims to address what they perceive as a systemic inequity in the housing market. Co-convener Julijana Todorovic argues that the existing discount disproportionately benefits property investors, contributing to soaring real estate prices and exacerbating generational inequity. “Our view is that the Labor government now has a mandate to rectify inequity in Australian society,” Todorovic stated. “While it’s clear from the election results that we can’t be too radical, we must do something to stem the flow of generational inequity.”
Labor for Housing proposes a phased approach, suggesting that the discount be grandfathered for existing investments but eliminated for future purchases. This mirrors the policy position of the Greens, who advocated for similar reforms during the last election cycle.
Economic Implications and Expert Opinions
Proponents of the reform argue that removing the CGT discount for property could redirect investment towards more productive sectors of the economy, such as technology and business. In a submission to the government’s Economic Reform Roundtable, Labor for Housing emphasized the potential benefits of such a shift. “Australia’s capital resources have become landlocked by a CGT discount on property,” the submission noted. “By incentivising investment in the productive powers of the market, the government can increase the circular flow of capital in the economy, creating jobs and additional economic activity.”
However, the proposal is not without its critics. The McKell Institute, aligned with Labor, suggests a more nuanced approach. Their report, “Harnessing Aspiration,” calls for reducing the CGT discount to 35 percent for existing properties with backyards while increasing it to 70 percent for newly-built apartments. This, they argue, would encourage the development of high-density housing and alleviate the housing shortage.
“There is a unique incentive for investors to speculate on existing detached houses rather than non-existing off-the-plan attached dwellings or established attached dwellings,” the report states. “The blanket tax treatment of each of these asset types means an investor is much more attracted to high-growth existing detached dwellings than moderate-growth attached dwellings, especially new builds.”
Political Landscape and Future Prospects
While Labor holds a significant majority in the House of Representatives, passing such a reform would require cooperation with the Greens in the Senate. The Greens’ alignment with the proposal could facilitate its passage, bypassing the need for broader crossbench support. Nevertheless, the political risks remain considerable, given the historical context of electoral backlash against similar policies.
As the debate unfolds, the Albanese government faces the challenge of balancing reformist ambitions with electoral pragmatism. The outcome of this policy push could have significant implications for the housing market and broader economic landscape in Australia.
Looking forward, the government must weigh the potential economic benefits of redirecting investment against the political costs of alienating property investors, a key constituency. The decision will likely shape the Labor Party’s economic platform in the lead-up to the next election, with far-reaching consequences for Australian society.
