Proposed changes to the capital gains tax (CGT) discount are already having a tangible effect on the housing market, despite not yet becoming law. Data from weekend house auctions and official taxation statistics show that the discount, introduced in 1999, was a primary driver of the housing affordability crisis, according to economist Greg Jericho.
CGT discount linked to housing crisis
Jericho, chief economist at the Australia Institute, testified before a Senate committee that his research identified the 50% CGT discount as “ground zero” of the housing crisis. Opposition finance spokesperson Claire Chandler challenged this, citing banking deregulation, inflation targeting, and Basel accords as larger factors. However, Jericho countered that dwelling prices remained stable relative to household income during those earlier reforms, only rising sharply after the CGT discount was enacted.
Chandler questioned whether the 1999 change could still affect the market 27 years later. Jericho responded, “The problem is that the thing that happened 27 years ago is still happening; it’s still here.”
Immediate market impact
Despite conservative opposition, house prices have already fallen by $100,000 or 10% nationally, with Sydney and Melbourne seeing declines of 7–8% year-on-year to November. Jericho noted the irony: “Not bad for a little thing that only had an impact 27 years ago.”
Who benefits from capital gains?
Opposition parties, including Pauline Hanson’s One Nation, argue that capital gains are vital for young people. Hanson claimed that “the largest capital gains cohort is younger,” citing 215,000 under-35s affected. However, ATO data for 2023–24 shows 1.6 million people had capital gains, with 369,000 under 35, compared to nearly 400,000 over 65. The largest cohort is those in their 50s.
Younger people also earn far less from capital gains on average. For under-35s, capital gains account for less than 1% of total income, versus 10% for those over 65. Capital gains are heavily concentrated among the wealthy: 0.2% of income earners (27,964 people with incomes over $1 million) captured 38% of net capital gains. Occupations with higher average incomes, such as financial advisors and anaesthetists, are more likely to report capital gains.
Political implications
Jericho suggests that opposition to the CGT changes is driven by vested interests protecting older, wealthier Australians. “For 30 years we’ve had governments seemingly care more about that cohort than others,” he wrote. “Now that a government finally is trying to address the problem of intergenerational wealth inequality, it is no shock that the vested interests are upset.”
Weekend auction results and official tax data, Jericho concludes, show that arguments against the CGT changes are hollow.
