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Labor Budget to Deliver Negative Gearing and Capital Gains Tax Reforms Targeting First Home Buyers

Treasurer Chalmers says 75,000 young Australians will gain access to home ownership through planned tax changes

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By LineZotpaper
Published
Read Time2 min
Sources19 outlets
Treasurer Jim Chalmers will announce changes to negative gearing and capital gains tax in Tuesday night's federal budget, with the government claiming the reforms will help 75,000 young Australians buy their first home.

The Albanese government will use the 2026 federal budget to reform two of Australia's most debated property tax concessions, with Treasurer Jim Chalmers framing the changes as a direct response to the housing affordability crisis locking younger generations out of home ownership.

The government projects that 75,000 young people will be able to purchase a home as a result of the policy shift, though specific details of the scope and structure of the changes were not released ahead of the budget announcement scheduled for Tuesday evening.

Negative gearing — which allows property investors to deduct rental losses against their broader taxable income — and the capital gains tax discount, which reduces the tax burden on profits from selling investment assets held for more than 12 months, have long been identified by housing economists and advocacy groups as contributing to elevated property prices by favouring investors over owner-occupiers.

The reforms represent a significant political shift. Labor went to the 2019 federal election with a policy to limit negative gearing to new properties and reduce the capital gains tax discount, but suffered a surprise election defeat that was partly attributed to those proposals. The party subsequently shelved the policies for years, wary of the political cost.

Housing affordability has deteriorated sharply since then, with median house prices in Sydney and Melbourne remaining among the highest in the world relative to incomes. Rental vacancy rates have remained tight across most capital cities, adding further pressure on younger Australians who cannot enter the market.

The property investment sector and some economists have previously argued that winding back negative gearing could reduce investment in rental housing, potentially tightening supply and pushing rents higher — a concern the government will need to address as it outlines the detail of its approach.

Full details of the changes, including phase-in arrangements, any grandfather provisions for existing investors, and how the 75,000 figure was modelled, are expected to be released when the Treasurer delivers the budget speech tonight.

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Analysis

Why This Matters

  • Housing affordability is a defining economic and social issue for Australians under 40; changes to these tax settings could meaningfully shift the balance between investors and first home buyers in the property market.
  • The political stakes are high — Labor's previous attempt to reform these concessions contributed to its 2019 election loss, making this a significant reversal of strategic caution.
  • The detail will matter enormously: grandfather clauses, phase-in periods, and the treatment of new versus existing properties will determine whether the policy lifts supply or simply redistributes demand.

Background

Negative gearing has existed in Australia's tax system for decades, allowing landlords to offset losses on investment properties against other income. The capital gains tax discount — introduced by the Howard government in 1999 — halved the effective tax rate on profits from assets held longer than 12 months, including investment properties.

Critics, including the Grattan Institute and various housing economists, have long argued these two concessions together inflate property prices by making investment in existing housing more attractive than it would otherwise be. Defenders, including real estate industry groups, argue they underpin rental supply and that removing them risks a shock to rents and construction investment.

Labor took a version of these reforms to the 2019 federal election — limiting negative gearing to new builds and reducing the CGT discount from 50% to 25% — and lost in a result widely analysed as a rejection of the policy by middle-income property owners. The party abandoned the platform, but sustained housing price growth and a generational affordability crisis have since rebuilt political pressure for action.

Key Perspectives

Federal Government: Frames the changes as a fairness measure restoring balance between investors and aspiring first home buyers, and a structural response to the housing crisis rather than a short-term demand stimulus. Property Industry and Landlord Groups: Have historically warned that curtailing negative gearing reduces the financial incentive to invest in rental housing, risking a contraction in rental supply at a time when vacancy rates are already very low. Critics and Housing Economists: Some analysts caution that tax-side reforms alone will not solve a housing crisis rooted in inadequate supply, and that demand-side measures without accelerated construction risk simply reallocating existing stock rather than expanding it.

What to Watch

  • The specific structure of the reforms: whether negative gearing is eliminated entirely, limited to new properties, or capped by value or number of properties.
  • Modelling released by Treasury explaining how the 75,000 figure was derived and over what timeframe.
  • Reactions from property investor groups, housing advocates, and the Reserve Bank on the likely market impact.
  • Whether the Coalition commits to reversing the changes, which could become a central battleground at the next federal election.

Sources

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