Landlords who currently negatively gear properties in Australia will be exempted from the changes to be unveiled on budget night sparing millions of property investors.
News.com.au has confirmed that an estimated one million landlords that currently negatively gear properties will be spared losing their tax concessions.
Tax concessions will remain, however, for new property investors who negatively gear new builds and new apartments – a move the government believes will encourage the supply of new homes into the market.
WATCH: News.com.au’s Samantha Maiden breaks down what to expect in Tuesday’s federal budget in the video player above
The generous grandfathering arrangements mean the changes will not generate big revenue for the government for several years, with the Albanese government arguing they are aimed at levelling the playing field for first home buyers trying to buy existing homes.
But the door will slam shut on budget night for investors seeking to enjoy the same benefits for existing housing stock under the changes that will come into force from 2027.
News.com.au has confirmed the changes will kick in on budget night, which means anyone who doesn’t have an existing property they own already and plan to negatively gear, will not be able to buy another from Tuesday night and claim the tax concessions.
Speaking on Sky News, Treasurer Jim Chalmers was pushed on whether the changes represented the biggest broken promise since Julia Gillard’s no carbon tax pledge.
“The status quo in housing and in tax is unfair and unacceptable, and so any responsible government like ours will respond to that,’’ he said.
“Now, when it comes to comments that we have made in the past, I do acknowledge that during the election campaign, the focus was almost exclusively on supply, plus the 5 per cent deposits. I think our comments and commitments at the time reflected that.
“Too many people are locked out of housing, and we need to address both of those concerns at once.”
But the big question is whether or not the Coalition will pledge to repeal the tax changes if elected in 2028.
Deputy Liberal leader Jane Hume did not guarantee the changes would be repealed despite saying that the changes were “a tax grab by a cash-strapped Labor government.
“And we know that when Labor runs out of money, they come after yours.”
“You’ll repeal it then?” she was asked.
“No, I want to see what, exactly what it is that labor are proposing, because they’ve flown so many kites,’’ she said.
An estimated 2 million Australians own an investment property and around half – 1,277,000 Australians negatively gear an investment property.
Despite gloomy predictions that the changes will impact existing investors and increase rents, the government will announce on budget night that’s not the case.
Investors who currently negatively gear will be exempt from the changes.
They will still be able to negatively gear if they do want to invest, but only for new builds that fit the government’s new criteria.
The capital gains changes will impact existing investors however. The changes will return capital gains tax in Australia to the pre-1999 discount, which was equal to inflation.
That means if you sell a property the old capital gains tax regime will apply over the period up until the changes come into force, but capital gains after that period will be subjected to the new regime.
Treasurer Jim Chalmers will seek to reframe big changes to negative gearing and capital gains tax discounts for landlords in the May budget with a pledge to provide the infrastructure to unlock up to 65,000 new homes.
Despite falling behind on previously announced targets to help build 1.2 million new homes by 2029, the Treasurer will announce a plan on Sunday designed to fund critical infrastructure.
But the catch is that the pledge for 65,000 new homes spans 10 years and relates purely to infrastructure – roads, power, water and sewerage – rather than the government building individual houses.
The Treasurer said the new funding will unlock the enabling infrastructure needed to finish housing projects that otherwise wouldn’t go ahead due to a lack of infrastructure like roads, water, power and sewerage.
“Building more homes is a big focus of this Budget and a big focus of the Albanese Government,’’ the Treasurer told news.com.au.
“Right now, it’s too hard for too many Australians to get into their own home and get ahead and that’s why we’re investing in supply.
“Our housing plan is pro-aspiration and it’s pro-investment.
“We’re coming at this housing challenge from every responsible angle, and boosting supply is central to that.”
Around $500 million in funding is reserved to build infrastructure to build new homes in regional Australia.
The Local Infrastructure Fund is designed to support the delivery of 65,000 homes over 10 years and will cost $2 billion
Housing Minister Clare O’Neil said the “boring but essential work” unlocks housing supply – the water, power and sewerage that make new homes and new communities possible.
“This critical investment will literally lay the foundations for our country to build more homes, because more housing supply means more housing affordability,’’ she said.
‘Scare campaign of lies’
Mr Chalmers has vowed to smash through a “scare campaign of lies” over changes to negative gearing and capital gains tax, revealing the goal is to level the playing field for first home buyers.
A dramatic slump in home ownership among younger Australians and huge tax breaks flowing to the rich will be used to justify big changes for landlords in the May budget.
But tax incentives to invest in new homes will continue. This move is designed to encourage investors to boost supply instead of competing with first-home buyers for existing housing stock.
Insisting the changes are not designed to punish existing baby boomer investors, the Treasurer has outlined his rationale for big bang tax reform to news.com.au, insisting the time is now to end the “intergenerational anxiety” over housing.
But he has conceded that the reforms – which involve breaking promises not to touch negative gearing and capital gains tax arrangements – are “controversial” and will unleash a massive “scare campaign”.
In an interview with news.com.au, the Treasurer insisted the motivation for the changes is to level up the playing field, not to punish baby boomer investors.
“We’re not trying to punish anybody who has made decisions about how they’ve used the tax system or the housing market in the past,’’ the Treasurer said.
“It’s about trying to expand opportunity in the housing market for more people.
“Our motivation in considering some of these changes is recognising that helping people get a toehold in the housing market is a really important way of helping people get a toehold in the economy more broadly.”
The crackdown would not apply to the family home however, because owner occupiers are already exempt from capital gains tax.
The big sales pitch all comes down to rewarding the voters that put the Prime Minister in the Lodge in the first place: millennials and gen Z voters that now comprise 47 per cent of the electorate, overtaking baby boomers the last federal election as the largest voting bloc.
‘Easiest thing in the world’ to do nothing
The Treasurer said the government understood that the “easiest thing in the world” would be to do nothing, but that wasn’t the right thing to do for the nation.
“Tax reform is hard, building more homes is hard, but it’s really necessary – because these intergenerational anxieties are real,’’ he said.
“The easiest thing in the world would be for governments to continue to pretend that these intergenerational issues don’t exist. What we’re trying to do in this budget is choose the hard road of reform rather than the path of least resistance.”
“We’re trying to make sure that this very substantial global volatility is not an excuse to just keep kicking the can down the road on some of these really difficult issues.
“There are hard decisions in the budget, there are elements that will be controversial.”
After weeks of media articles suggesting that the changes could see rents rise or investors flee the market, the Treasurer said he was ready to fight for the changes.
“We know there’ll be a scare campaign full of lies that comes after Tuesday night, but the sorts of things we are trying to do recognise these pressures that people are under,’’ he said.
“When I get stopped in the street, whether it’s in my community or around the country, this is often the issue people raise — and not just people who are finding it hard to get into the housing market, but including a lot of people who’ve done well out of housing and the status quo.
“There is in the Australian community a level of understanding that something is not quite right in the housing market or in the tax system.”
After four years as Treasurer, he insisted that he wasn’t about to die wondering.
“When you come to these jobs, you’ve got a choice – you want to try and make changes, or you want to mark time,’’ he said.
“When there’s this obvious level of very substantial concern in the community about the sort of opportunities that all of us are passing on to kids in this country, we have a sense of responsibility.”
Home ownership rates plunge
The data that the government will seize on to sell the changes confirms that home ownership rates for younger Australians have sharply dropped in the last two decades.
For people aged 25-29 the proportion owning their own home declined from 43 per cent in 2001 to 36 per cent in the last census.
Those figures are five years old, suggesting the current rate could be even lower.
For 30-34 year olds the home ownership rate has fallen from 57 per cent to 50 per cent over the same period.
What the CGT discount costs the budget
Capital gains tax generally does not apply to the family home because your main residence is exempt from CGT if you’re an Australian resident.
It does however apply to property investments for landlords.
The Australian capital gains tax (CGT) discount is a 50 per cent reduction in the capital gain amount for property investors and trusts holding assets for over 12 months.
News.com.au understands the government will seize on Treasury figures underlining the huge hit to the budget as a result of generous tax concessions for property investors.
For example, over 1.1 million individual tax filers realised a net capital gain in 2022–23.
Rental deductions/negative gearing
Massive tax breaks, totalling $57 billion in rental deductions, are flowing to landlords.
For example, in 2022–23, around 2.4 million people claimed $57.1 billion of rental deductions, related to earning $59.0 billion of gross rental income.
Nearly half of claimants – 49 per cent (1.2 million) – had a rental loss, known as negative gearing, which added up to total rental losses of $11.0 billion.
