Buying a newly built home will mean younger Australians can still benefit from negative gearing under the government's proposed tax reforms. However, analysis suggests the budget's rhetoric may not match reality for many aspiring homeowners.
Key Tax Changes in the Budget
Treasurer Jim Chalmers has outlined what he calls the most ambitious tax reforms since the turn of the century. The core change involves returning to the pre-1999 version of capital gains tax (CGT), where investors receive a discount based on inflation rather than the current 50% exemption on profits from investments held over a year. Additionally, negative gearing will be eliminated for new investors, except for those purchasing newly built homes, as the government aims to boost housing supply. The budget also introduces a minimum 30% tax rate on income from discretionary trusts, a common tool for wealthy households to reduce tax liabilities.
Impact on Housing Affordability
Chalmers stated that these concessions have distorted the housing market, tipping the balance against first home buyers. However, experts question whether the reforms go far enough. The budget papers reveal that since 2000, the top 1% of earners received an average tax benefit of over $730,000 from the 50% CGT discount, negative gearing, and trust tax advantages. The next 1% of high earners averaged $152,000, while the median taxpayer received just $12,400. The reforms aim to restore balance but will not rectify past inequities, as existing investments are grandfathered.
Expert Opinions
Former Treasury secretary Ken Henry acknowledges the budget does not fix everything but calls it a significant step in the right direction. Independent economist Saul Eslake agrees, noting the changes will meaningfully contribute to solving the housing crisis over time, though not alone. Opposition leader Angus Taylor has vowed to oppose and repeal the changes, arguing they harm young Australians' ability to build wealth. Shadow treasurer Tim Wilson claimed the reforms have "knee-capped young Australians" by removing the tax breaks their parents enjoyed.
Reality for First Home Buyers
Data from the Australian Bureau of Statistics shows that since 2019, about 6% of first home buyers were investors—roughly one in 20. Since 2020, an average of 7,400 new first home investors have entered the market annually, many using negative gearing or betting on capital gains to fund future home deposits. The ban on negative gearing for existing properties will disadvantage those pursuing "rent-vesting" strategies. However, Chalmers emphasized that investing in newly built homes remains an option, and the reforms aim to help 75,000 more Australians, primarily younger ones, enter the housing market.
Conclusion
While the budget represents the biggest tax reform in a quarter of a century, the impact on younger Australians may not match the political rhetoric. The changes make the tax system fairer but do not fully address the expectations gap for those who missed out on past concessions.
