Australia’s housing tax settings are once again under scrutiny after the Commonwealth Bank of Australia (CBA) warned that changes to investor tax concessions could become one of the federal government’s most realistic options for improving the budget. While no policy changes have been announced, the bank believes reforms to the capital gains tax (CGT) discount or negative gearing are increasingly likely as Canberra balances housing affordability, inflation and public finances.
The discussion comes as property prices remain well above pre-pandemic levels, government spending stays elevated and interest rates continue to shape borrowing costs. Economists say any future tax changes would primarily affect residential property investors rather than owner-occupiers.
Why CBA believes housing tax concessions are under pressure
In its latest economic outlook, CBA estimates the federal government currently gives up between $15 billion and $18 billion each year through tax concessions linked to investment property. According to the bank, the 50% capital gains tax discount represents roughly $13 billion of that amount, making it the largest single concession.
Luke Yeaman, CBA’s Chief Economist, said stronger economic growth, persistent inflation pressures and ongoing budget challenges are increasing the likelihood that policymakers will examine tax settings that generate substantial revenue without creating an entirely new tax system.
The bank argues that reducing the capital gains tax discount could deliver greater budget savings than limiting negative gearing alone, making it one of the more significant reform options available if the government chooses to act.
How capital gains tax and negative gearing work
Under current Australian tax rules, investors who hold an eligible asset for more than 12 months generally receive a 50% discount on the taxable capital gain when they sell. Negative gearing allows investors to offset eligible rental property losses against other taxable income, reducing their annual tax bill.
Supporters argue these measures encourage investment in housing and rental supply, while critics believe they contribute to higher home prices and provide greater benefits to higher-income households than first-home buyers.
The Grattan Institute, in a submission to a Senate committee, proposed reducing the capital gains tax discount from 50% to 25% over a five-year transition period. The think tank estimated the measure could eventually raise around $6.5 billion annually.
Treasury data referenced in the submission indicated that more than 80% of CGT discount benefits are received by the highest-income Australians, while around 95% of the total value flows to taxpayers earning above the national median income.
Housing market outlook remains positive despite uncertainty
Although debate over tax reform continues, CBA expects Australia’s housing market to keep growing, albeit at a slower pace than last year. The bank forecasts national home values to increase by around 5% during 2026, following stronger growth in 2025.
The moderation reflects higher borrowing costs, affordability pressures and the possibility that future policy changes could influence investor demand. However, economists note that Australia’s ongoing population growth and limited housing supply continue to provide underlying support for property prices.
For homeowners and investors tracking broader housing trends, our guide to major economic and consumer developments explains how policy decisions can affect household finances and investment confidence.
Interest rates remain another key factor
CBA expects monetary policy to remain an important influence on the property market. The bank previously forecast another 25-basis-point Reserve Bank of Australia interest rate increase, reflecting concerns that stronger domestic demand could keep inflation above the central bank’s target range.
According to Luke Yeaman, rising household disposable income has supported consumer spending, while public expenditure and improving business investment have helped strengthen economic activity. If demand continues to outpace supply, inflationary pressure could remain elevated, influencing future RBA decisions.
No changes have been announced
Despite renewed discussion around housing tax concessions, the Australian Government has not announced any changes to capital gains tax discounts or negative gearing rules. Any reforms would require legislation and would likely involve extensive consultation before taking effect.
For investors, homeowners and prospective buyers, the current debate highlights the growing focus on balancing housing affordability, government revenue and economic growth. Whether reforms ultimately proceed will depend on future government policy decisions rather than economic forecasts alone.
Official information about Australia’s capital gains tax rules, including exemptions and reporting requirements, is available through the Australian Taxation Office.
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