Senate committee releases findings from CGT discount review

The Select Committee on the Operation of the Capital Gains Tax Discount released its final report on Tuesday, outlining four key findings.

The committee, chaired by Greens Senator Nick McKim, included two Labor senators, two senators from the Liberal Party and independent Senator David Pocock.

The majority report handed down by the committee stated that throughout the inquiry, the committee had consistently heard that the current design of the capital gains tax discount "results in a degree of concessional treatment relative to labour income".

The report said this could potentially distort decision making and incentivise tax planning.

The second key finding by the committee was that the design of the capital gains tax discount has the potential to distort the allocation of investment across the economy.

The committee said there was evidence that the existing housing stock accounts for a substantial share of capital gains eligible for the capital gains tax discount.

The report acknowledged that there were a number of factors that influence housing markets but said there was evidence that "the concessions provided by the capital gains tax discount, in combination with negative gearing, [had]skewed the ownership of housing away from owner-occupiers and towards investors".

The other major finding in the report was that the benefits of the capital gains tax discount are unequally distributed, with implications for income and wealth inequality and intergenerational inequality.

The Coalition senators on the committee challenged some of the majority report's findings in their dissenting report.

Senator Andrew Bragg criticised the Chair's report as a "simplistic and one-dimensional analysis of Australian housing policy".

"Supply of housing has collapsed in Australia as the population has surged. Supply is at the heart of the housing crisis, as repeatedly stated by representatives from the housing sector during the hearings," Bragg said.

Bragg said the Liberal Party believes the current CGT discount is working as intended and should not be changed.

"It supports more investment, provides an incentive for new construction, and helps boost housing supply."

The Liberal Party senators concluded that the analysis in the report did not support the argument that reducing the CGT discount would deliver more homes or higher levels of home ownership.

In additional comments contained within the report, the Greens called for the CGT discount to be abolished for investment properties and substantially reined in across all asset classes, along with broader tax reform.

"The capital gains tax discount must be substantially reined in across all asset classes so that unearned income from owning assets is taxed as closely as possible as earned income from going to work each day," the Greens said in the report.

"Australians should not have to pay double the amount of tax as someone earning the same income buying and selling investment properties."

McKim said Labor had been handed a historic opportunity to pass "genuinely ambitious and progressive tax reform in this parliament.”

“The only limits are Labor’s level of ambition and courage."

“The Greens have high expectations of the Government. Tinkering around the edges is not going to cut it.