Australia’s biggest bank has warned that billions of dollars in housing tax concessions are now the most likely target for reform, with capital gains tax discounts and negative gearing both firmly in the frame.
Commonwealth Bank says the federal government is currently forgoing between $15 billion and $18 billion a year in tax revenue due to property investor concessions, with the 50 per cent capital gains tax discount accounting for about $13 billion of that total. The bank believes the figure could be even higher after record home price gains since the pandemic.
CBA chief economist Luke Yeaman said housing is likely to “bear the cost of stronger growth” as policymakers search for ways to repair the budget while inflation pressures return.
“With rate hikes back in focus, public spending at historically high levels as a share of GDP, and productivity growth still weak, pressure will grow for more substantial economic reforms,” Mr Yeaman said.
He said the most likely move would be a change to housing tax concessions, either through a phasing out of the 50 per cent capital gains tax discount or the introduction of a cap on negative gearing.
Under current rules, property investors who hold an asset for more than 12 months can halve the taxable portion of their profit when selling. Negative gearing allows investors to deduct rental losses from their overall income each year. Both measures have long been criticised for pushing up house prices and favouring investors over first-home buyers.
According to estimates referenced by CBA, scaling back the capital gains tax discount would raise significantly more revenue than changes to negative gearing alone, making it the most attractive option for the government.
A submission to a Senate committee by the Grattan Institute last December recommended cutting the capital gains tax discount from 50 per cent to 25 per cent, with the change phased in over five years rather than grandfathered. The proposal was estimated to raise around $6.5 billion per year once fully implemented.
The submission argued that the current system heavily favours higher-income Australians. Treasury data shows that more than 80 per cent of capital gains tax benefits flow to the highest income earners, while about 95 per cent of the total benefit goes to people earning above the median income.
CBA has also updated its housing outlook, now forecasting national home prices to rise by around 5 per cent in 2026, down from 8 per cent growth in 2025, as higher interest rates and potential tax reforms weigh on demand.
The bank expects at least one more Reserve Bank interest rate increase of 25 basis points in May, meaning borrowers could face two rate hikes so far this year.
“Every rose has its thorn,” Mr Yeaman said. “In this case, the rose is stronger growth, and the thorn is higher inflation and higher interest rates.”
CBA said rising household disposable income has helped support consumer spending, even as borrowing costs climb. Public spending remains strong, private business investment is starting to lift, and demand is again showing signs of running ahead of supply.
“As demand starts to exceed supply, inflation pressures return,” Mr Yeaman said, noting that this was a key reason the Reserve Bank lifted interest rates in February.
While business tax reform has also been discussed, CBA said there is little agreement on how to proceed and that any changes would likely take years to design and implement. By contrast, housing tax concessions represent a faster and more politically viable source of savings.
For now, no final decisions have been announced. But with the May budget approaching and pressure mounting to address housing affordability and inflation, changes to capital gains tax and negative gearing are increasingly seen as difficult to avoid.
An overview of how capital gains tax works for Australian property and investment sales is available via the Australian Taxation Office.
