| Property |
Capital
Gains
| Spotlight |
CGT
2026
the $18 Billion Question
Australia’s largest bank, the Commonwealth Bank, says up to $18 billion in tax concessions for property investors – including the capital gains tax (CGT) discount and negative gearing – are now the most likely targets for reform.
For property investors, the CGT discount halves the tax paid on profits from the sale of investment properties, while negative gearing allows annual losses to be deducted against other income. Winding back these concessions would return billions of dollars to the federal budget, with CGT changes delivering the largest gain.
Treasury estimates show the federal government is currently forgoing between $15 billion and $18 billion a year in revenue by allowing individuals and trusts to claim these concessions on property sales and rental losses. The CGT discount accounts for the bulk of the cost, estimated at around $13 billion, with the total likely higher given the surge in home prices since the pandemic.
CBA chief economist Luke Yeaman said housing is expected to “bear the cost of stronger growth” as policymakers look for ways to rein in inflation and repair the budget.
Mr Yeaman, who served as Treasury’s deputy secretary and head of its macroeconomic group during the pandemic, said trimming property tax breaks was the most likely reform option as pressures mount from higher interest rates, elevated public spending and weak productivity growth.
“With rate hikes back in focus, public spending at historically high levels as a share of GDP and productivity stuck in the slow lane, pressure will grow for more substantive economic reforms and deeper cuts to government spending,” he said
Potential Impacts
CBA has revised its housing outlook, now forecasting home prices to rise 5 per cent in 2026, down from 8 per cent growth in 2025, as higher interest rates and potential tax changes dampen demand.
The bank now expects at least one more Reserve Bank rate hike in May, which would leave borrowers facing two increases so far in 2026.
“We now expect the RBA to deliver one more 25 basis-point rate hike in May to take more heat out of demand and ensure inflation moves back to target,” Mr Yeaman said.
“Every rose has its thorns – in this case the rose is stronger growth, and the thorn is higher inflation and interest rates.”
Rising household disposable income has helped fuel consumer demand, offsetting the impact of higher borrowing costs and adding to inflationary pressure.
“Consumers continue to build confidence, public spending remains strong, private business investment is lifting and demand is starting to exceed supply,” Mr Yeaman said. “Most importantly, inflation has again reared its ugly head.”
That resurgence in inflation prompted the Reserve Bank to lift interest rates in February.
A Grattan Institute submission to a Senate committee last December recommended cutting the CGT discount for individuals and trusts to 25 per cent, phased in over five years without grandfathering existing investments.
The proposal would raise an estimated $6.5 billion a year for the federal budget, according to the submission by Brendan Coates, Joey Moloney and Aruna Sathanapally.