Negative gearing has a near-mythical status in Australian politics: reform attempts are viewed by some as an electoral landmine, others as a long-overdue change for housing market equity.
During a frenetic 36 hours this week, changes to negative gearing and capital gains tax were mooted, tentatively backed by numerous Labor MPs and then seemingly snuffed out (for now) by the prime minister, Anthony Albanese.
These two controversial tax settings, respectively, allow property investors to claim the difference between their rental income and their mortgage interest payments as a deduction, and to reduce the tax an investor pays when they sell a home.
The ensuing scuffle reflected negative gearing’s totemic status in political discourse. But there was little discussion about what might actually be on the table if changes were considered.
The debate started on Wednesday, when the Nine newspapers reported that the Treasury had modelled the economic impact of changes to negative gearing and capital gains tax.
Guardian Australia understands the treasurer’s office asked Treasury for a briefing on housing and its response included a range of policy options, with some related to negative gearing and CGT.
Albanese and the treasurer, Jim Chalmers, did not expressly rule out future changes in Wednesday media appearances. On Thursday Albanese was asked on ABC TV if the government was considering taking such reforms to the next election. He replied: “No, we’re not.”
Albanese this week said the government was focused on policies that would increase supply, which he claimed negative gearing reforms wouldn’t do.
No concrete details of the latest Treasury modelling have been released, and no government members have suggested potential settings for change.
But below are some options raised by others, and previously.
Lambie-Pocock proposals
Parliamentary Library research commissioned by the crossbench senators David Pocock and Jacqui Lambie found 935,628 people were negatively gearing properties in 2021-22 – equating to 6.1% of taxpayers. More than double that number, 14.4%, were positively gearing their properties (that is, earning more in rental income than their mortgage payments, and therefore not claiming that deduction).
Pocock and Lambie, who back reforms to negative gearing and CGT, commissioned Parliamentary Budget Office research on five possible sets of changes to the two policies.
In April they said some could net up to $60bn over a decade.
The most ambitious change would abolish negative gearing, grandfather the 50% CGT discount to currently owned properties and limit the discount to newly built properties.
The least expansive option would limit negative gearing to one property and stop the deduction for vacant properties, and halve the CGT discount to 25% for new homes built.
Three other options sit in between those settings.
The Greens’ policy: cap properties and five-year phase-out
The Greens’ policy at the 2022 election was to restrict new negative gearing to only one investment property, then phase out the concession entirely for properties already negatively geared over a five-year period.
They also proposed cutting the CGT discount from 50% back to the CPI rate of inflation.
Greens-commissioned Parliamentary Budget Office analysis found tax breaks to residential property investors would cost more than $165bn over the next decade.
The party’s housing spokesperson, Max Chandler-Mather, said the Greens were “willing to talk” to Labor about how phasing out the two tax breaks could look like in practice.
He said he didn’t expect Labor to “just adopt” the Greens’ policy entirely, and that the party would be open to a “middle ground”.
Bill Shorten’s policy: negative gearing only on new homes, halving CGT discount
One Labor MP told us it would be “ridiculous” to “resurrect” the Shorten-era policies – Labor’s last public attempt at negative gearing and capital gains reform – considering they had been rejected at two elections.
But they are a barometer for a potential Labor starting point. Shorten called in 2016 for CGT discounts to be reduced from 50% to 25%. He also backed restricting negative gearing to only new homes in the future, while exempting existing negatively geared properties from changes – essentially grandfathering current investors.
Shorten at the time said such changes would “help level the playing field for first home buyers competing with investors”, claiming working- and middle-class Australians had been “priced out … for too long”.
Joe Hockey’s suggestion: only for new builds
In his final speech to parliament in 2015 the former Liberal treasurer Joe Hockey presented a similar idea to Shorten’s. He said Australia needed broader tax reform – and to be “wiser and more consistent on tax concessions”.
“In that framework, negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property,” Hockey said.
At the National Press Club on Thursday, Hockey – now a lobbyist – didn’t expressly repeat those comments but again suggested incentives around new builds, noting concern about knock-on effects of potential rent increases as landlords absorb costs.
“You want to try and skew the system towards new real estate.”
This article was updated on 27 September 2024. An earlier version said the PBO found tax breaks given to investors with more than one property would cost more than $165bn over the next decade. The analysis found the $165bn figure applied to tax breaks given to all residential property investors, not just those with more than one property.
