(AUSTRALIA) — Treasurer Jim Chalmers’ Labor government is considering recalibrating the capital gains tax, including the CGT discount, as it faces mounting budget pressure ahead of the May 2026 federal budget, although it has not confirmed any final decision.
Jim Chalmers has not ruled out changes, but he told ABC radio on Monday that “the government had not changed plans on the tax discount,” while pointing to other ways of dealing with intergenerational budget issues.
Officials and analysts have framed the review as a live policy option rather than a settled measure, with debate intensifying as the government weighs how to raise revenue without worsening strains in housing and the broader economy.
Pressure has built from the outlook for a forecasted $42.1 billion deficit in 2025-26 and net debt rising to $620 billion, as Labor faces calls to show a clearer path to budget repair.
Australia’s capital gains tax framework already carves out some large exemptions, with primary residences and pre-1985 assets outside the net under current rules.
For investments that do attract CGT, the holding period matters. Assets held under 12 months are taxed on full gains at marginal rates, while gains on assets held over 12 months qualify for a discount that reduces the taxable portion.
The discount settings affect a wide spread of investors because they apply across common asset types including property, shares, ETFs, and cryptocurrency, and they can shape decisions about whether to hold, sell, or redeploy capital.
Labor’s current review has revived a long-running tax reform argument about whether concessions still meet their original intent, or whether they now skew incentives toward assets already in high demand.
The discount, introduced in 1999 following the Ralph Inquiry, aimed to incentivize long-term investment, but critics say its modern effects include amplifying after-tax returns in ways that can widen gaps between those who already own assets and those trying to enter the market.
In the current debate, the central idea under discussion involves reducing the CGT discount for assets held longer than 12 months, but the government has not published a final policy design.
Key design questions remain unresolved, including the rate, the start date, the treatment of different asset classes, and whether any carve-outs apply to limit effects on particular cohorts of investors.
Grandfathering has also become a central unknown. Without clear rules on whether existing holdings keep current treatment, investors and advisers have warned that even the prospect of change can alter behaviour well before any legislation reaches parliament.
The fiscal backdrop has given the debate extra urgency. Australia is grappling with pressures linked to spending at about 27% of GDP in 2025-26, alongside downgraded growth forecasts of 1.5% in 2024-25 and 2.25% in 2025-26.
Recent Reserve Bank rate hikes amid sticky inflation have also sharpened political sensitivity around housing costs and consumer budgets, making any tax change harder to sell if it is seen to raise rents or reduce market liquidity.
International institutions have added to the mix. The IMF has urged comprehensive tax reforms that include CGT settings, while also pointing to options such as lifting the GST to 10%, lowering company taxes, and increasing resource taxes, alongside protecting infrastructure to address housing supply and productivity.
The cost of the current CGT discount has become a focal point because it shows up as a sizeable “tax expenditure” rather than a line-item program, even though it reduces revenue year after year.
The federal budget estimates the CGT discount costs $19.7 billion in 2024–25, a figure that has drawn attention as the government searches for savings and new revenue sources.
Longer-term projections have pushed the debate further into the mainstream. Parliamentary Budget Office analysis projects $247 billion in forgone revenue over the next decade, a scale that economists say is hard to ignore in a deficit environment.
Supporters of trimming concessions argue that the benefits are concentrated and that the budget trade-off is increasingly difficult to justify when governments also spend heavily on housing and cost-of-living measures.
They also argue that the way capital gains tax interacts with housing and other asset markets can intensify cycles, as investors respond to after-tax returns when deciding whether to buy or sell.
Economists and unions backing a reduction have linked the change to both equity and housing. They argue that trimming the concession could curb investor competition in housing and support budget repair at a time when growth forecasts have softened.
Property and investor groups have pushed back, warning that altering the CGT discount could create pre-implementation surges in demand as buyers and sellers try to lock in existing treatment.
Those groups have also warned of a potential drop in transaction volumes once a new regime begins, as owners hold back from selling if the after-tax return falls, which can reduce market turnover.
Rental market impacts have become a flashpoint in the argument. Opponents of change say reduced investor appetite could tighten rental supply and worsen rent pressures, even as proponents counter that investment demand can also bid up prices for first-home buyers.
Chalmers’ public posture has kept the door open while trying to dampen expectations of a settled plan, especially as speculation builds about what might be packaged into the May 2026 budget.
Media reporting has suggested the government could try to balance any CGT move with household relief elsewhere in the tax system, to blunt political backlash and address concerns about younger workers.
A 9 News Australia report from February 22, 2026, said any CGT increase must pair with personal income tax cuts to assist younger workers, and it cited a set of reductions in a lower personal income tax rate taking effect from mid-2026 and then again a year later.
Those personal income tax cuts, the report said, cost $17.1 billion, underlining the political logic of packaging a revenue raiser with a measure that delivers visible relief to wage earners.
Budget credibility has become part of the broader narrative as attention focuses on off-budget funds that the IMF and S&P Global criticised for inflating fiscal risks.
At the same time, the opposition has used the moment to argue for constraints on the overall tax take. The Liberal opposition proposes capping taxes at 23.9% of GDP via structural reforms to combat bracket creep.
That wider dispute matters because it shapes how markets, business groups and voters interpret a potential CGT discount change: as a stand-alone measure aimed at investors, or as part of a more comprehensive rewrite of Australia’s tax mix.
The implementation mechanics are emerging as almost as important as the headline policy. Analysts have warned that the choice between grandfathering and an immediate switch can determine who bears the cost, and whether the change prompts a short-term rush.
If the government opts for limited or no grandfathering, investors could bring forward sales or purchases, affecting both transaction volumes and near-term prices as they try to lock in existing treatment.
Contracting and settlement dates can also become decisive. A cut-off tied to contract signing can produce different outcomes than one tied to settlement, and that uncertainty can drive activity before the rules are even finalised.
Analysts have predicted investor rushes to buy before any cutoff, creating transaction spikes and longer-term tax disadvantages for post-change purchases, a pattern that can complicate market signals and distort decision-making.
The government has not confirmed any implementation date, and it has not set out how it would treat exemptions or carve-outs beyond the current architecture that excludes primary residences and pre-1985 assets.
With those details unsettled, advisers and investors have focused on what counts as a concrete signal, such as draft legislation, consultation papers, or explicit grandfathering rules, rather than general commentary about fairness or sustainability.
Debate over capital gains tax is also intersecting with arguments about the GST, company tax, and resource taxation, themes the IMF has linked in calling for comprehensive reform.
In that context, CGT changes can be seen as one lever among many, alongside broader questions about the spending share of the economy and how to fund infrastructure that governments say is needed to lift productivity and support housing supply.
For Labor, the challenge is balancing budget repair with housing pressures and cost-of-living politics, while keeping financial markets confident about the fiscal trajectory flagged by the deficit and net debt figures.
For the opposition, the argument has centred on limiting the tax burden and tackling bracket creep through structural change, while casting doubt on new or expanded revenue measures.
The next clear decision window is the May 2026 federal budget, where any announced CGT discount recalibration would need to be matched with enough detail to answer questions investors now treat as central: when the change starts, who it applies to, and what happens to gains on assets already held.
Until then, markets are likely to keep reacting to incremental signals, watching for Treasury costings, packaging with personal income tax adjustments, and any shift in Chalmers’ language beyond his insistence that “the government had not changed plans on the tax discount.”
Jim Chalmers Signals Capital Gains Tax Review, Putting CGT Discount in Play
Australia’s Labor government is weighing a controversial reduction of the capital gains tax discount to repair the federal budget. Facing significant debt and deficits, officials are considering how to reform the 1999-era tax concession without disrupting the housing market. The debate centers on balancing fiscal responsibility with investor stability, potentially linking any CGT increases to broader personal income tax relief in the upcoming 2026 federal budget.
