Labor Targets Negative Gearing and CGT Discount in Budget Overhaul

(AUSTRALIA) – Treasurer Jim Chalmers said in February 2026 that Labor was modeling changes to negative gearing and the CGT discount ahead of the May 2026 federal budget, reopening a tax debate the government had ruled out before the last election.

As of April 28, 2026, the Australian Labor government had not implemented any reforms to negative gearing or capital gains tax. It was actively considering changes for the budget due in weeks, with discussion centered on cutting the 50% capital gains tax discount on assets held longer than 12 months and limiting tax deductions tied to investment property losses.

Chalmers flagged one model that would lower the CGT discount from 50% to 33% and restrict negative gearing to two investment properties. No final decisions had been announced by Tuesday.

That marked a shift from Labor’s earlier position. Prime Minister Anthony Albanese had ruled out similar changes before the 2025 election, after the party’s earlier push to wind back negative gearing and capital gains tax concessions became a political liability in 2019.

Grattan Institute CEO Aruna Sathanapally urged the government to revisit the tax settings, arguing that negative gearing, which lets rental losses offset other income, and the CGT discount together distort the housing market. Her case focused on first-home buyers being pushed out of middle-ring suburbs in capital cities as investors receive tax support that owner-occupiers do not.

The options under discussion largely echo Labor’s 2019 platform. At that election, the party proposed limiting negative gearing to new dwellings and halving the CGT discount, while grandfathering existing arrangements for assets bought before the change.

Reserve Bank analysis in 2019 pointed to a limited long-term effect on housing supply. The assessment said developer margins would be preserved through lower land prices, a finding that has remained part of the case for change as housing costs climbed.

One option now being examined would stop investors from using losses on existing dwellings to reduce tax on salary and other income. Instead, those losses could be carried forward and used later against capital gains on the same assets.

Another version would keep negative gearing for newly built homes while removing or limiting it for existing properties. That approach aims to shift investor demand away from established homes and toward new housing, while preserving a tax incentive linked to construction.

On capital gains tax, policymakers are weighing a cut in the discount from 50% to either 25% or 33% for individuals, partnerships and trusts that hold assets for more than 12 months. The current treatment for superannuation funds and the small business active asset reduction would remain unchanged under the proposals described.

Grandfathering has also featured in the discussion, with pre-reform assets likely to keep their current treatment. That was part of Labor’s earlier approach and would limit the effect on investors who bought before any new rules took effect.

The current system allows losses from negatively geared property to offset wage income and other earnings, while the current CGT discount halves taxable capital gains on assets held longer than 12 months. The family home remains exempt, and no change to that exemption has been proposed.

Supporters of reform argue the concessions carry a heavy budget cost and skew benefits toward higher-income households. Estimates cited in the debate put the annual revenue forgone at about $20 billion, with the gains concentrated among the top 10% of earners.

Those backing changes also point to modest housing price effects rather than a sharp market break. Grattan and Treasury estimates cited in the debate suggest house prices would fall by about ~2%, while rents would remain broadly steady and first-home buyers would gain ground against investors.

Backers say the combination of a lower CGT discount and tighter negative gearing would also reduce the tax appeal of borrowing heavily to buy existing homes. Over time, that could redirect household savings into other assets and reduce debt built around property speculation.

Critics in the real estate sector have warned that cutting concessions could weaken incentives to build. That concern has sharpened the focus on versions of reform that preserve tax benefits for new dwellings while tightening them for established housing.

The debate has also drawn comparisons with capital gains tax rules before the 1999 changes under Paul Keating, when Australia did not apply the current flat 50% discount. Chalmers has left open the prospect of a wider tax package in the budget, though the government had not settled the shape of any overhaul by Tuesday.

Separate capital gains tax changes affecting foreign residents are already legislated and take effect variably from 2026. They sit outside the current debate over negative gearing and the CGT discount, which now turns on whether Labor uses the May 2026 budget to revive a tax fight it once dropped.