Changes to Australia’s property tax concessions could net $60bn over decade, crossbench senators say

Crossbench senators Jacqui Lambie, left, and David Pocock say changes to negative gearing and capital gains tax (CGT) concessions could make major savings for the federal budget. Photograph: Mike Bowers/The Guardian

Crossbench senators David Pocock and Jacqui Lambie have thrown down the gauntlet to Labor to reform property tax concessions by revealing changes that could net up to $60bn over a decade.

Changes to negative gearing and capital gains tax (CGT) concessions could make major savings for the federal budget even while allowing existing owners to continue to access a CGT discount, according to Parliamentary Budget Office modelling to be released on Tuesday.

With the Greens delaying the Albanese government’s help-to-buy shared equity scheme to push for changes to negative gearing and CGT, it is likely Labor could legislate major property tax changes if it were prepared to abandon its pre-2022 election commitments to leave them as is.

Pocock and Lambie asked the PBO to examine five options to reform negative gearing, which allows rental losses to be deducted from other income, and the 50% CGT tax discount for residential property.

The most expansive option – abolishing negative gearing, grandfathering the 50% CGT discount to properties bought before 1 July 2024, and limiting it to new properties built after that date – would save $9.9bn over four years, and $60bn in the decade to 2033-34.

Under the least expansive option – limiting negative gearing to one property and disallowing the deduction for vacant properties, and halving the CGT discount to 25% for new homes built after 1 July 2024 – would save $642m over four years and $15.7bn over the decade.

An option in the middle would be to grandfather both the CGT discount and negative gearing, so that they no longer apply to purchases after 1 July 2024, which the PBO said would save $27.7bn over the decade.

The PBO found that retaining the 50% CGT discount in full and limiting negative gearing to properties built after 1 July 2024 would save $50.5bn over the decade.

Pocock and Lambie argue the modelling shows it is possible to protect people’s existing investments while moving to a model that uses tax concessions to incentivise new supply.

Pocock told Guardian Australia that “for existing stock this isn’t stopping anyone investing in real estate, it’s just winding back what are overly generous tax concessions to 15% of the population”.

“There is a real urgency that all solutions be on the table,” he said, describing grandfathering CGT and limiting negative gearing to one property as “a sensible way forward”.

In a statement Lambie said that negative gearing is “part of the problem” when it comes to the housing crisis “but protecting the mum and dad investors and retirees who have invested in housing must also be part of the solution”.

“Because this Labor government got their arses kicked in the 2019 election, they won’t talk about fixing negative gearing,” she said, urging Anthony Albanese and Jim Chalmers to “be brave and take this opportunity to consider these sensible reforms”.

The PBO advised the proposals would probably increase CGT revenue in the short-term “due to the significant bring-forward of sales and purchases by investors seeking to avoid being affected by” changes to negative gearing.

“Immediately after the policy start date, investor housing demand would be likely to fall, reflecting that potential property investors would have brought forward their purchases or would otherwise switch their investment towards other assets,” it said.

“Property prices would decline while other asset prices, such as those of Australian shares, would increase.”

Pocock said this would mean that first home buyers are “less likely to come up against property developers” when they go to buy, and over time winding back tax concessions could take home ownership back to the levels of the 1990s.

In 2016 the Grattan Institute estimated abolishing negative gearing and halving the capital gains tax discount to 25% would leave house prices roughly 2% lower than they otherwise would be, favouring would-be homeowners over investors.

It comes as Anglicare’s annual rental affordability snapshot, released on Tuesday, found there were only 45,895 listings across the country, the lowest in the 15 years Anglicare has prepared the report. Between 2018 and 2021 the number of available rentals listed was consistently above 65,000.

Just 289 rentals, or 0.6%, were affordable for a person earning a full-time minimum wage, and three rentals, all sharehouses, were affordable for a person on jobseeker.

The Anglicare Australia executive director, Kasy Chambers, said the snapshot showed “the housing crisis is the worst it’s ever been”.

“We’ve never seen such bad results for people on the minimum wage, with affordability halving for a single person in the last two years. Even couples with both partners working full-time are locked out of nearly 90% of rentals.”

The Greens housing spokesperson, Max Chandler-Mather, has argued a reduction in prices would be a positive development citing the fact that house prices have gone up more than double wages every year since 2000.

The opposition is also standing in the way of Labor’s help-to-buy scheme but with a few exceptions, such as Liberal senator Maria Kovacic, who is opposed to housing tax changes.

The Coalition is looking to expand its super for housing policy by allowing first home buyers to withdraw more super and existing homeowners to pay their super into their mortgage offset accounts.