Paul Clitheroe's take on the 2026 Budget tax changes

More than 2.2 million Australians own a rental property, so it's no surprise that the big-ticket aspects of the latest Federal Budget - reforms around negative gearing and capital gains tax (CGT) - have stirred up a variety of views. 

Before I share mine, let's recap what the proposed reforms involve: 

Negative gearing would go - except for new builds 

Negative gearing would be scrapped from 1 July 2027 for investment properties purchased after 12 May 2026 (Budget night). 

It means an ongoing loss on a rental property can no longer be deducted from other income, like an investor's wage and salary, to lower their overall tax bill. 

The exception to this is newly built properties, as well as properties held prior to 12 May. Both can continue to be negatively geared. 

Capital gains to be indexed, taxed by at least 30% 

CGT is also being reformed, and this applies to investments beyond property including shares.  

Instead of being able to claim a 50% discount on capital gains, from July 2027 capital gains on the sale of an asset will be adjusted for inflation, then taxed at a minimum of 30% regardless of an investor's actual tax rate. 

Newly built properties are an exception here too. Investors can choose between the 50% discount or the new indexing arrangements. 

Why the reforms?  

The Albanese Government is claiming these reforms will help around 75,000 first home buyers get into the property market over the next decade. 

Some commentators are questioning how this will happen as the reforms don't directly increase the supply of housing. This overlooks the fact the changes will help to remove a key stumbling block for first home buyers - competition from investors.  

We know that investors have been highly active in the more affordable end of the housing market, often outbidding or outpricing first home buyers. 

This is contributing to a decline in home ownership, especially among younger Australians. Just two in five of today's 25 to 35-year-olds own a home, down from more than 60% in the 1980s. 

Don't get me wrong: A well-located, well-priced property can be a great long-term investment.  

But I've been arguing for decades that negative gearing on residential property is poor policy for Australians.  

Negative gearing is a tax break that hugely favours high-income earners - and it is something we just don't see in many other advanced economies. Most other developed economies provide some form of tax relief, though it may be directed at a home rather than an investment property.  

In the US, homeowners can claim mortgage interest as a tax deduction. In the UK, negative gearing was wound back over a decade ago to give first home buyers more of a chance in the market.  

So, yes, I am in favour of removing negative gearing on investment properties - except for new homes, which add to our national housing supply. 

The 50% CGT discount also favours high-income earners. In addition, our homes are tax-free, we have a superannuation system that favours high-income earners, and it's all topped by zero death duties. 

Long story short, we are shifting too much wealth to the minority - chiefly, older, high-income earners. 

There are other solutions 

I am all for people building wealth, being financially independent in retirement, and creating employment opportunities.  

However, we have reached the point where the bias is too strong - and plainly unfair to younger Australians who don't have "Bank of Mum and Dad" support to help fund a first home.  

One potential solution to the rising wealth inequality in Australia is higher GST. It is possible to compensate low-income earners for an uptick in GST as a way of ensuring the wealthy pay more. 

Another potential, but politically unpalatable, solution could be a death tax. This is already in place in the UK, where inheritance tax can be as high as 40%. You can imagine how well that sort of tax would go down with most Aussies. It's an obvious election loser. 

For me, it keeps coming back to a higher GST. This would allow for the removal of many non-productive taxes such as payroll tax, plus lower personal tax rates, along with compensation for lower-income earners and those on a pension.  

Unfortunately, unless this gets support from all major parties, it just won't happen. 

I do worry that for future generations too much money is ending up in the hands of too few. Sure, I won't be around forever to see it all pan out, but this is not the Australia I want for future generations. 

For a country that has long embraced home ownership as the 'great Australian dream', backed by 'a fair go for everyone', something clearly has to give.