A Parliamentary Budget Office analysis has revealed that the controversial capital gains tax (CGT) discount policy will cost Australian taxpayers an eye-watering $247 billion over the next decade. What started as a way to encourage investment has evolved into a financial burden on ordinary Aussies. With housing prices soaring and the wealth gap widening, many are now questioning if the CGT discount is contributing to the problem.
The Growing Cost of Capital Gains Tax
The CGT discount, introduced in 1999 by the Howard government, allows property investors and asset holders to pay only half the tax on capital gains from assets held longer than a year. On paper, it was supposed to boost investment and stimulate the economy. Fast forward to today, and this policy has resulted in an estimated $247 billion cost to the federal budget over the next 10 years. That’s $247 billion that could have been spent on public services, infrastructure, or even housing affordability initiatives, but instead, it’s going largely to Australia’s wealthiest investors.
The CGT discount has long been criticized for disproportionately benefiting the top 1% of earners, who have accounted for nearly 60% of the benefits. Meanwhile, the top 10% of earners collectively take home 82% of the entire discount, details 9News. The disparity in who benefits from the CGT system is hard to ignore. This is a policy that was supposed to help create wealth for everyone, but it seems to be doing the opposite, with ordinary Australians paying the price.
The Impact on Housing Prices and Renters
One of the biggest criticisms of the CGT discount is its role in driving up housing prices. Critics, including Greens Senator Nick McKim, argue that the policy inflates property values, making it even harder for first-time buyers and renters to get a foothold in the housing market. The government’s own analysis suggests that the discount is artificially inflating property values, benefiting those who already own multiple properties at the expense of those who don’t.
This has led to growing intergenerational inequality, where the older generations, particularly those with property portfolios, are reaping the rewards, while younger Australians are left struggling to pay rent or save for a home deposit. For renters, the soaring house prices mean higher rents, making it harder to live in major cities like Sydney and Melbourne. It’s a vicious cycle: the more wealth you have, the more you benefit from policies like CGT, and the more difficult it becomes for those without wealth to break into the property market.
Could a Reform Be on the Horizon?
With the May 2026 federal budget on the horizon, there’s growing speculation about CGT reform. As more Australians are priced out of the housing market, some experts and policymakers are pushing for a scale-back of the CGT discount, particularly for investment properties. NSW Treasury has called for reform, citing the damaging effect of the policy on housing affordability and home ownership.
Some senior Labor figures have hinted at potential tax reform, though they’ve been careful not to commit. While the government has long been reluctant to touch the CGT discount due to political pressure—particularly after Labor’s loss in the 2019 election when it proposed changes to CGT and negative gearing—it’s now a growing topic of discussion. With intergenerational inequality becoming a more prominent issue, it’s likely that CGT reform will feature in upcoming budget debates.
What Does It Mean for You?
So, what does all this mean for the average Aussie? If the CGT discount is reformed or reduced, it could have a far-reaching impact on investors, particularly those who rely on property for income or retirement savings. Investors might see their tax liabilities increase, which could change the way they approach property and investment in the future.
For renters and first-time buyers, however, reform could be a win. Reducing the CGT discount could slow down the rate at which property prices continue to climb, making it more affordable for those trying to get into the market. While any reform would take time to take effect, it could be a step toward making housing more accessible and reducing the wealth gap that the current policy has helped to widen.
