What Negative Gearing and Capital Gains Tax Do – Here’s the Data; Here’s the Evidence

Key Takeaways

• Negative gearing costs $6.5B; CGT discount $5.49B annually.
• Investors hold 39% of 2025 loan commitments, double first‑buyers.
• Proposed reforms could cut investor loans, modestly easing prices.
• Past reform signals dropped investor lending 50% and prices 11.5%.
• Recouping $97B could fund 97,000 affordable homes.

Summary

Australia’s federal budget foresees $11.99 billion annually lost to negative gearing and the capital gains tax discount, with a projected $193.9 billion revenue shortfall over the next decade if unchanged. In 2025 investors accounted for 39 percent of new housing loan commitments—almost double the share of first‑home buyers—while their loan volume rose 28 percent year‑to‑date. The government is weighing reforms, including reducing the CGT discount to 33 percent and limiting negative gearing to two properties, but analysts argue only a far more aggressive tax shift would curb investor demand and ease housing affordability. Historical data show that signalling reform can halve investor lending and pull house prices down by over 11 percent.

Pulse Analysis

The Australian tax code currently offers generous concessions to property investors through negative gearing and a 50 percent capital gains tax (CGT) discount. According to the Parliamentary Budget Office, these measures cost the Commonwealth roughly $6.5 billion and $5.5 billion respectively each fiscal year, amounting to almost $12 billion in foregone revenue. The scale of investor participation is evident in the 2025 housing‑finance data: investors secured 214,352 new loans, representing 39 percent of all commitments, while first‑home buyers captured just 22 percent. This imbalance fuels price pressure and squeezes entry‑level buyers.

Policy makers are debating two headline reforms: trimming the CGT discount from 50 percent to 33 percent and restricting negative‑gearing claims to a maximum of two properties. While these steps would modestly reduce the fiscal gap, research suggests they are unlikely to shift investor behaviour enough to meaningfully lower house prices. The experience between 2017 and 2019 offers a cautionary benchmark—when reform was signalled, investor loan volumes fell by nearly half and median house prices in the eight capital cities dropped 11.5 percent. A comparable, decisive tax overhaul would be required to replicate that impact.

Beyond price dynamics, the revenue gap presents a fiscal opportunity. Recapturing even half of the projected $193 billion loss—about $97 billion—could finance roughly 97,000 affordable or social homes, assuming a $1 million construction cost per unit. Such an injection would address the chronic shortage of entry‑level housing and reduce reliance on the private rental market. For policymakers, the challenge is to balance revenue recovery with market stability; a bold redesign of the investor tax regime, coupled with targeted reinvestment in housing supply, could simultaneously curb speculation, improve affordability, and deliver long‑term economic benefits.