The 50 per cent CGT discount for individuals and trusts should be reduced to 25 per cent, with a gradual phase-in over five years (rather than grandfathering). This would better balance competing objectives, and raise about $6.5 billion a year for the federal budget.
The dominant rationale for this reform is the economic and budgetary benefits – money which could be used to shore up the budget, reduce more economically harmful taxes and lower the tax burden on younger Australians, or pay for more support for low-income renters by boosting Commonwealth Rent Assistance.
Property prices would probably fall by less than 1 per cent. And would-be homeowners would win at the expense of investors.
This reform would have only a modest impact on the pace of new housing construction, and rents. For example, immediately halving the Capital Gains Tax discount could decrease the number of new homes being built by about 10,000 over the five years to 2030. That would result in a tiny – less than $1 per week – increase in median rents across Australian capital cities.
This impact on housing supply, and rents, could be more than offset if even a small portion of the proceeds from the reforms was used to fund a further boost to Australia’s social housing stock, or was reinvested in a revitalised National Competition Policy agenda to encourage state and territory governments to lift the pace of housing construction by reforming land-use planning rules and other regulatory barriers to more housing.