Treasurer Jim Chalmers has defended the Federal Government’s decision to overhaul capital gains tax and negative gearing rules, arguing the changes are necessary to improve housing affordability and rebalance the tax system, while property industry groups warn the reforms could tighten rental supply and reduce investor activity.
The measures, announced in the 2026-27 Federal Budget, will remove negative gearing on established residential properties purchased after Budget night and replace the 50 per cent capital gains tax discount with an inflation indexation model from July 1, 2027. Existing investments will continue under transitional arrangements.
During a televised interview on Sky News after the Budget, Chalmers acknowledged the government had changed its position since the election campaign.
“We’ve changed our policy. When a government changes its policy, when it changes a view on some really important areas like these, the onus is on us to front up and explain why, and that’s what we’re doing,” he said.
Pressed on accusations the government had broken an election promise, Chalmers said supply remained central to the housing strategy but argued additional action was now needed.
“The policies that we took to the election reflected the Government’s almost singular focus on supply,” he said.
“It’s become increasingly clear to us that even though supply is still the main game when it comes to problems in the housing market, and we’ve invested in more supply in this Budget – the problem begins there, but it doesn’t end there.”
Property valuation and advisory firm Herron Todd White said the changes would reshape investor behaviour over time and could alter the balance between investment property and owner-occupied housing.
“Changes to the CGT discount are expected to reduce after-tax returns on capital assets, including property, and will mostly influence investor behaviour over time by reshaping relative investment attractiveness across asset classes”
Chief Economist of Herron Todd White Cameron Kusher said: “Changes to the CGT discount are expected to reduce after-tax returns on capital assets, including property, and will mostly influence investor behaviour over time by reshaping relative investment attractiveness across asset classes.”
Kusher warned the removal of negative gearing for established homes could reduce the number of rental properties entering the market.
“If investor demand falls away, there is a significant risk that fewer rental properties are added to the system, which could place additional pressure on already tight rental markets,” he said.
He added that the policy appeared aimed at younger Australians and first-home buyers, though its effectiveness remained uncertain.
“This budget is very much being pitched at helping younger Australians and in particular helping first home buyers enter the housing market, whether that happens remains to be seen.”
Chalmers argued the broader tax package would support housing supply overall because concessions would remain available for developments that genuinely increase housing stock.
“If you’re genuinely adding to housing supply, then that qualifies,” he said when asked about duplex developments.
Under the new framework, investors purchasing newly built homes will still be able to negatively gear and access the 50 per cent capital gains tax discount, while those purchasing established properties after Budget night will not.
The Treasurer said the reforms were intended to make the housing market more accessible to younger Australians.
“The interaction of the housing market and the tax system has locked too many Australians out for too long, particularly young people,” Chalmers said.
Industry groups have disputed whether the measures will improve affordability.
Property Investment Professionals of Australia Chair Cate Bakos said the changes risked worsening rental shortages.
“When you add these CGT and negative-gearing changes on top, you don’t just slow investment – you tighten an already constrained supply pipeline to breaking point, which is the opposite of what the housing market needed right now”
“When you add these CGT and negative-gearing changes on top, you don’t just slow investment – you tighten an already constrained supply pipeline to breaking point, which is the opposite of what the housing market needed right now,” she said.
Bakos said the reforms would particularly affect “rentvesters”, younger Australians who buy investment properties while renting elsewhere.
“For many young people, the long-term plan is to sell their investment and use the equity to buy their first home,” she said.
“With the CGT discount reduced, the tax bill they face becomes significantly larger, which is a direct penalty on the very cohort the government claims to be helping into home ownership.”
She argued rentvesting had become one of the few remaining entry points into the housing market for younger Australians.
“The CGT tax increase will shut down one of the few remaining pathways young Australians had to get a foothold in the market via rentvesting,” Bakos said.
Kusher also said the changes could make property investment harder for lower-income Australians.
“Residential property investment in established properties may still be attractive to wealthier individuals who can afford to carry-forward those losses,” he said.
“For individuals on lower incomes that would like to invest in residential property it’s probably further out of reach unless they can find a positively-geared asset because they may not be able to afford these losses.”
The Treasurer rejected suggestions the Budget would drive investors or startups offshore, saying the government remained supportive of innovation and venture capital.
“The Budget is very pro-startup and venture capital,” Chalmers said.
“We see it as really important. It’s really dynamic, it’s going to make a bigger and bigger contribution to our economy over time.”
Chalmers also ruled out taxes on the family home, inheritance and wealth.
“The family home, changes to inheritance taxes, all of these things are off the table for any responsible government,” he said.
The Budget changes are expected to remain a major point of political and economic debate as the government argues the reforms will improve fairness and housing access, while critics warn the impact on rental supply and investor confidence could take years to emerge.
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