The debate over capital gains tax (CGT) reform has returned to Canberra with familiar urgency. As the Senate inquiry examines whether the 50 per cent CGT discount remains fit for purpose, Australia once again risks mistaking tax mechanics for housing policy.
The conversation is not new. What has changed is the economic pressure surrounding it.
The Origins of the 50% CGT Discount
Introduced by the John Howard government in 1999, the 50 per cent capital gains tax discount was designed to:
- Offset inflation
- Encourage long-term investment
- Simplify capital gains calculations
Two and a half decades later, it sits at the centre of a broader conversation about intergenerational equity, productivity and housing affordability — themes reinforced by Anthony Albanese and Treasurer Jim Chalmers ahead of the May budget.
What began as a technical tax adjustment has evolved into a political symbol.
The Rental Market Tension
The Real Estate Institute of Australia argues that reducing the CGT discount — or restricting negative gearing — would push rents higher.
Their reasoning is straightforward:
- Lower capital returns reduce investor appetite.
- Reduced investment tightens rental supply.
- Landlords seek to recoup diminished returns.
- Rents rise.
With 2.4 million households renting from private investors, even modest behavioural shifts could ripple through an already constrained market. Sydney rents at $800 per week are not theoretical; they are lived reality.
The Productivity Counter-Argument
On the other side, the Australian Council of Trade Unions argues that the CGT discount channels capital into established housing rather than productive enterprise.
The Grattan Institute has suggested that:
- Reform may modestly cool speculative demand.
- Rental increases may be limited.
- Capital could shift toward more productive sectors.
If rents rise only marginally while investment becomes more economically efficient, reform could yield net benefit.
That is the economic case for change.
Where the Debate Becomes Performative
This is where the discussion risks becoming symbolic rather than structural.
Housing affordability is fundamentally a supply constraint problem.
Planning bottlenecks, zoning rigidity and infrastructure lag are far more determinative than marginal tax adjustments. Former NSW Treasury official Robert Carling is correct in one key respect:
Scarcity — not tax preference — is the dominant price driver.
Tax reform adjusts incentives at the margin. It does not create dwellings.
Capital Is Mobile
If the government proceeds with property-specific CGT reform, as flagged by Finance Minister Katy Gallagher, it must do so within a coherent, cross-asset framework.
Otherwise, capital will simply migrate:
- To equities
- To superannuation
- To alternative investments
- To private credit markets
Capital does not disappear. It reallocates.
Without parallel supply reform — land release, infrastructure coordination, streamlined approvals — tax changes alone will not resolve the structural housing deficit.
The Structural Reality
Tax reform can sharpen incentives.
It cannot replace:
- Cranes
- Approvals
- Zoning reform
- Infrastructure investment
Absent supply reform, CGT tinkering risks becoming economic theatre — symbolically potent, structurally marginal.