Jim Chalmers weighs CGT discount cut as Labor backs Greens on housing investor tax reform

Labor senators have backed a Greens push to cut tax breaks for housing investors in a new report that offers cover to where Jim Chalmers wants to take his Budget in May.

The Treasurer is expected to have a significant cut to the capital gains tax discount on housing investments among the “whole bunch of options” on tax reform he’s planning ot take to Cabinet.

Currently, the CGT discount means people who sell investment properties only pay tax on half the profit.

It costs the budget more than $20 billion a year in foregone tax.

The measure also applies to capital gains on investments such as shares and crypto assets.

But it has become substantially used for existing housing – rather than creating an incentive to build new homes – and exacerbated inequality, according to a Senate committee led by the Greens’ Nick McKim with Labor’s Richard Dowling and Ellie Whiteaker.

This distorted people’s decision-making.

“The concessions provided by the capital gains tax discount, in combination with negative gearing, have skewed the ownership of housing away from owner-occupiers and towards investors,” the committee found.

While they couldn’t land combined recommendations, Senator Dowling said in comments on behalf of himself and Senator Whiteaker that the committee’s work and evidence given to it “should be considered … as part of the Government’s ongoing consideration of tax policy and potential future reforms”.

Dr Chalmers has been keeping an eye on the committee’s work as he moulds his fifth budget.

Its work in public and Tuesday’s report gave him an indication of where the parties stood on the issue, he said.

“I’ll read it, of course, I will,” he said.

“But these decisions ultimately get taken by the cabinet, not by parliamentary committees. And when it comes to budgets, they’re usually finalised closer to May than the middle of March.”

The government will likely need to win backing from the Greens for any changes, given the Coalition has been stridently opposed.

The committee heard calls for the tax break to be cut from 50 per cent to anywhere between 10 and 40 per cent, with most people saying it should be halved to 25 per cent.

Economic heavyweights Ken Henry and Bernie Fraser said it should be scrapped altogether.

Senator McKim called for the capital gains tax to be abolished entirely for investment property sales, with the measure phased out rather than grandfathering changes, “to ensure a significant release of housing is made available for renters to buy”.

He also called for tweaks to stop wealthy people holding on to properties until they were receiving tax-free superannuation income, and to stem the use of trusts.

After the report’s release, Senator McKim said it laid out convincing evidence for change.

“Labor has now 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,” he said.

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

But Coalition contributors Andrew Bragg, the shadow housing minister, and Dave Sharma derided Senator McKim’s conclusions as “a simplistic and one-dimensional analysis of Australian housing policy” that ignored the lack of supply.

“The suggestion that Australia’s housing crisis can be solved by changing the CGT discount is as silly as it is cruel. Weakening or abolishing it would do little for affordability, while cutting rental stocks, pushing up rents, and discouraging investment,” they said in a joint statement, following up their dissenting report on the committee’s work.

They argue cutting the tax break would in fact reduce the number of properties in the market.