Labor reportedly considering changes to CGT discount ahead of budget

On Tuesday (3 February), The Australian Financial Review reported that the government was considering changes to the capital gains tax (CGT) discount in the lead-up to the May budget, according to an unnamed government source.

In an interview with ABC Radio on Wednesday (4 February), Treasurer Jim Chalmers refused to rule out changes to the tax discount but reiterated that Labor would continue to focus on addressing Australia’s housing crisis through supply-side measures.

“I think the best way to deal with the intergenerational issues in housing are supply, and the best way to deal with issues in the tax system are to continue to cut income taxes, to make superannuation fairer and to deal with multinational taxes,” Chalmers said.

“Obviously, there are things that governments wouldn’t contemplate, things like death taxes, for example, or changing the arrangements for the family home. But I think we should be capable, as the Senate Committee has provided for us, of having a discussion about the intergenerational issues in housing.”

The 50 per cent CGT discount applies to assets held for over a year. It was introduced in the late 1990s to replace the more complex CGT cost base indexing, which ensured that asset-holders were not taxed for gains caused purely by inflation.

In November, the Greens secured a Senate inquiry into the CGT discount with the support of the Coalition to investigate the tax discount’s impact on Australia’s housing market and productivity.

“The CGT discount is the most unfair and unequal tax break in the entire Commonwealth tax code, which is supercharging house prices and locking first homebuyers out,” Greens senator Nick McKim said in a November statement.

“This inquiry will shine a light on how the CGT discount has supercharged inequality, funnelled money away from productive investment, and turned homes into financial assets instead of places of shelter and community.”

Various submissions have called on the government to shrink the CGT discount, with ANU’s Tax and Transfer Policy Institute calling for a modest reduction to 40 per cent, while the Grattan Institute argued it should be halved to 25 per cent.

Ahead of the budget, Deloitte Access Economics also proposed the government should reduce the CGT discount to 33 per cent, alongside a broader package of tax reforms that included simplifying and indexing personal income tax brackets and increasing the GST.

The CGT inquiry, which was established on 4 November, is set to present its final report by 17 March. The federal budget is expected to be delivered in May.