The New South Wales (NSW) government is calling on the federal government to reconsider the capital gains tax (CGT) discount, arguing that it severely impacts housing affordability and home ownership. The state believes this tax policy disproportionately favors affluent investors rather than helping first-time home buyers enter the market.
Originally introduced by the Howard government in 1999, the CGT discount offers a 50% reduction on profits from investments held for more than a year. While it was initially seen as a positive move to encourage long-term investment, many now criticize it as a significant factor contributing to the current housing crisis in Australia.
In a submission to a select committee examining this tax discount, NSW Treasury emphasized the "major implications" it has caused across the nation, especially within the state itself. Their submission highlighted the unintended consequences of the discount: "While it was meant to stimulate long-term investment, it has led to an influx of investor demand for properties, which in turn has driven up housing prices and worsened affordability issues."
This situation poses a particular challenge for first-time buyers, making it increasingly difficult for them to buy homes, which contributes to a decline in home ownership rates. According to statistics from the Australian Bureau of Statistics, home ownership rates have fallen from 71% in the 1999-2000 period to just 66% in 2019-2020.
The trend is reflected in lending patterns as well. Data compiled by the Treasury shows that in 1994, $13 billion was lent to investors compared to $10 billion for first-home buyers. Fast forward to last year, and those numbers dramatically shifted, with $139 billion lent to property investors—more than double the $64 billion extended to first-time buyers.
The Treasury's report pointed out that the CGT discount largely benefits higher-income individuals. By reducing this discount, there could be a decrease in investor demand, potentially leading to lower or more stable property prices. The submission stated, "The magnitude of this concession, its concentration among wealthier investors, and its impact on skewing investment behavior—particularly in the housing market—underscore the need to reassess the current framework of the CGT discount."
Despite these arguments, Federal Treasurer Jim Chalmers has consistently dismissed any proposed changes to the discount. The Labor party has advocated for reductions in the CGT discount during the 2016 and 2019 elections but faced defeats at the hands of the Coalition both times.
Overall, Australia has missed out on approximately $23 billion in potential revenue due to this tax discount, with around $8.7 billion of that loss attributable to New South Wales alone.
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