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Tax reform for property investors is firmly on the table ahead of budget night. (Source: Getty) \u00b7 Getty Images <\/p>\n Tax reform for property investors is firmly on the table ahead of budget night. (Source: Getty) \u00b7 Getty Images <\/p>\n
If the volume of headlines is anything to go by, tax reform is on the Labor Governments 2026 agenda<\/a>, and property investors are squarely in the frame. The government says its ready to take serious reform<\/a> to the upcoming federal budget.<\/p>\n On the surface, targeting Capital Gains Tax (CGT) discounts and negative gearing looks like a logical response to housing affordability. But that\u2019s only part of the story.<\/p>\n To understand what may change, and why, we need to revisit what these policies were designed to do in the first place.<\/p>\n RELATED<\/p>\n Tax policy is rarely accidental. Incentives like the CGT discount and negative gearing exist to encourage behaviours governments see as economically useful \u2013 like investments that create jobs and \/ or produce accommodation for families.<\/p>\n The CGT discount, introduced in 1999, addresses a basic imbalance. Consider two investors: one earns steady annual income from an investment, while another sees all their return at the end when they sell. Without a discount, the second investor is taxed more heavily simply because their gain is realised in one year, often pushing them into a higher tax bracket.<\/p>\n The 50% CGT discount corrects this distortion. It ensures long-term investment in assets \u2013 like property \u2013 isn\u2019t penalised compared to income-generating investments.<\/p>\n Negative gearing, by contrast, has been around since 1936. Its purpose was straightforward: encourage investment in housing during a time of severe shortage. It allows investors to offset losses against other income, effectively bringing forward tax deductions. Importantly, those deductions still exist without negative gearing, they\u2019re just deferred until the asset becomes profitable.<\/p>\n Both policies share a common goal: stimulate investment, particularly in housing supply.<\/p>\n The simplest way to assess the impact of changes to these tax incentives is to consider the purpose of the tax it is offsetting.<\/p>\n Changes to the GCT discount are unlikely to have an immediate effect. CGT is only triggered when an asset is sold, so any behavioural shift would play out over the longer term.<\/p>\n Negative gearing is different. It directly affects cash flow. Reduce or remove it, and investors face higher holding costs in the short-term, making certain investments less attractive.<\/p>\n That matters because these incentives were designed to encourage supply. If they\u2019re weakened without a replacement mechanism, fewer investors are likely to fund new housing.<\/p>\n RELATED: Hitting landlords with changes to capital gains tax has hidden dangers: ‘Fewer will enter’<\/a><\/p>\n The consequences aren\u2019t theoretical. Queensland offers a recent example. Changes to land tax settings in 2022 created uncertainty for investors, and many stepped back from building. The policy was eventually reversed, but not before supply tightened significantly. Rents have surged, up roughly 50% over 5 years, and Brisbane now sits just behind Sydney in median house prices.<\/p>\n When investment slows, supply follows. And when supply falls short on population growth, rents rise.<\/p>\n There\u2019s a common assumption that reducing investor demand will improve affordability. In reality, it doesn\u2019t reduce the number of people needing homes, it just reduces the number of rental properties available to house them.<\/p>\n In other words, it risks shifting the problem rather than solving it.<\/p>\n The deeper driver is fiscal.<\/p>\n The Australian Government\u2019s Centre For Population studies released its 2025 Population Statement in January 2026.<\/p>\n It shows the old-age dependency ratio will increase from 26.9% today to 38.7% over the next 40 years. That means fewer working-age taxpayers supporting more retirees.<\/p>\n Two decades ago, there were nearly eight working-age people per retiree. By 2066, that number drops to just 2.6.<\/p>\n At the same time, government spending pressures are increasing, healthcare, aged care, NDIS, and the energy transition all require funding. The gap between revenue and expenditure is widening. That leaves governments with a limited set of options: cut spending, increase taxes, or both.<\/p>\n Given that the value of housing in Australia has grown by $9 trillion in the last 20 years, and most of that wealth is held by the older generations who have little to no debt, taxing property investors seems to be the path of least resistance for the government.<\/p>\n Tax reform is as much political as it is economic. Any changes must balance revenue goals with voter sentiment.<\/p>\n The numbers matter. Of Australia\u2019s roughly 9.8 million households, around 71% are owner occupiers. Policies that materially reduce house prices risk alienating a large majority of voters.<\/p>\n That makes broad-based changes unlikely.<\/p>\n A more profitable approach is targeted reform, particularly on future purchases rather than existing assets. This avoids immediate backlash while still reshaping investor behaviour over time.<\/p>\n We may also see a distinction between new and established housing. Maintaining incentives for new builds while reducing them for existing properties would allow the government to claim it is supporting supply while easing competition for first-home buyers.<\/p>\n Negative gearing could follow a similar path. Rather than abolishing it outright, restrictions may be introduced, potentially limiting its use or applying it differently depending on the type of property.<\/p>\n The risk, however, is that poorly calibrated charges reduce overall investment without meaningfully increasing supply.<\/p>\n Regardless of how tax settings evolve, the fundamental challenge remains unchanged: Australia is not building enough homes.<\/p>\n The construction sector is under pressure \u2013 labour shortages, rising costs, tighter regulation, and competition from large infrastructure projects are all constraining output. Even with strong incentives, increasing supply is difficult.<\/p>\n Without addressing these bottlenecks, tax reform alone won\u2019t solve affordability.<\/p>\n Tax changes to property appear increasingly likely, but the shape and timing of any reform remains uncertain.<\/p>\n If designed carefully, changes could improve the government\u2019s fiscal position while still supporting the flow of investment needed to deliver new housing. If not, there is a risk of unintended consequences for both supply and affordability.<\/p>\n What\u2019s clear is that housing policy doesn\u2019t operate in isolation. It sits within a broader economic and demographic shift that will shape decision-making for years to come.<\/p>\n For investors, periods of policy change often create uncertainty \u2013 but also opportunity.<\/p>\n Those who understand the drivers behind these decisions and remain focused on long-term fundamentals will be best placed to navigate whatever comes next.<\/p>\n Matthew Lewison is the CEO of property investment firm OpenCorp and has over 20 years of experience in residential and commercial real estate.<\/p>\n Get the latest Yahoo Finance news – follow us on Facebook<\/a>, LinkedIn<\/a> and Instagram<\/a>.<\/p>\n Jim Chalmers and Treasury have looked at various reforms to increase fairness in the housing market. (Source: AAP\/Getty) <\/p>\n