CGT discount not 'egregiously high' but overcompensates for inflation, inquiry hears

On Tuesday (24 February), the Select Committee on the Operation of the Capital Gains Tax (CGT) Discount held its second public hearing in Canberra to support its investigation of the discount’s effects on inequality and Australia’s housing market.

When asked by Greens senator Nick McKim whether the current CGT discount was too generous, ANU economist and director of the Tax and Transfer Policy Institute (TTPI) Robert Breunig said it was all a matter of policy intent.

“I don't feel like it's egregiously high. If you only think about it as a scheme to avoid taxing the inflationary component of returns, then it has been too high relative to the inflation rate,” Breunig told the Senate inquiry.

“If you have a broader theory about what is the right level of taxation of savings, and you want to use the capital gains discount to lower the tax rate on savings relative to income, then maybe it's not at the wrong level.”

Diana Hourani, an economist with the Organisation for Economic Cooperation and Development (OECD)’s tax division, told the inquiry that Australia was “not unusual” in its concessional tax treatment of capital gains when compared to other countries.

Like Breunig, she noted that broad-based tax concessions such as the CGT discount typically overcompensated individuals for inflation. She added that there was mixed evidence CGT discount helped achieve other policy objectives, including savings and entrepreneurship.

“Often these broad forms of relief overcompensate individuals for the inflationary component of gains. So when we look at the international scene, a lot of countries have other justifications,” Hourani said.

“There's also common arguments, for example, wanting to support domestic savings and investment, entrepreneurship and so on. But … when we actually drill into these justifications for tax relief, often they are not as supportive.”

For example, she said there was little evidence to support arguments that CGT relief actually increased aggregate savings, domestic investment or broad based entrepreneurship.

Hourani noted that other countries were starting to interrogate their own taxation of capital gains due to concerns about inequality. Broadly, OECD work had found that reforming capital taxation could bring about economic benefits.

“In general, our work has found that reforming the taxation of capital could raise additional revenue, enhance efficiency and reduce inequalities,” she said.

“Recently, many countries have seen renewed interest in the taxation of capital gains, due in part to evidence of high concentration of gains among the wealthiest households.”

The committee, which will hold an additional hearing in Mascot today (25 February), is due to present its final report on 17 March 2026.