CBA says $18 billion housing tax benefits ‘likely’ to be cut – realestate.com.au

Australia’s largest bank, CBA, says $18 billion in tax breaks for property investors – from CGT rebates to negative gearing – will now “most likely” be cut.

Analysis of the Treasury’s estimates shows that the government is currently missing out on around $15 to $18 billion in foregone tax revenue by allowing individuals and trusts to use these rebates and deductions on the sales and rentals of their properties – with CGT accounting for the bulk of around $13 billion. It is believed the figures could rise even higher given record house price increases since the pandemic.

Commonwealth Bank chief economist Mr Yeaman said “housing will bear the cost of stronger growth”.

Mr Yeaman, deputy secretary of the federal Treasury and head of the government’s macroeconomic group during the pandemic, labeled the measures as the “most likely move” by policymakers seeking to reform the government’s generous tax breaks.

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Luke Yeaman is now chief economist at the CBA and served as deputy secretary of the federal Treasury during the pandemic.

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“With interest rate hikes back at the forefront, government spending at historically high levels as a share of GDP and productivity remaining on a slow path, pressure will increase for more substantive economic reforms and deeper cuts in government spending,” he said.

“We still expect to see some substantial new measures in the May Budget, but final decisions will not be made until Budget Night. In our view, the most likely move is an abolition of the 50 per cent capital gains tax (CGT) rebate for residential properties and/or a cap on negative gearing.”

For residential investors, the CGT discount reduces the tax on profits from the sale of rental properties by 50 percent, while negative gearing reduces the tax on any property losses annually. Curtailing or phasing out these perks would put billions in revenue back into the federal budget – but significantly more from the CGT change.

According to a Grattan Institute submission to the Senate Committee in December last year – by Brendan Coates, Joey Moloney and Aruna Sathanapally – “the 50 per cent CGT discount for individuals and trusts should be reduced to 25 per cent, with phase-in over five years (rather than ‘grandfathering’)”. That would mean that no investor with real estate will now be exempt from the change.

“This would better balance competing goals and generate approximately $6.5 billion per year for the federal budget,” their submission said.

Cutting capital gains tax breaks for investors benefiting from the housing price boom is the ‘most likely option on the table for policymakers.

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Mr Yeaman said several business tax reforms have also been proposed, but “there is little agreement on the solution” and some face major implementation challenges.

“If corporate tax reform is pursued, expect a lengthy design and consultation process, not quick action. Other ways for the government to save will be considered, but given the huge structural spending pressures in health, disability and defense, it is unlikely that overall spending levels will change much,” he said.

The CBA this week revised its housing outlook and now expects house prices to rise 5 percent in 2026, declining from 8 percent growth in 2025, as higher interest rates and potential tax reform cool demand.

CBA now expects at least one more rate hike from the RBA in May, meaning borrowers could face two increases so far in 2026.

“As Belinda Allen has set out, we now expect the RBA to deliver another 25 basis point rate hike in May, to draw more demand from the market and get inflation back to target,” Yeaman said.

“Every rose has its thorns… in this case the rose is higher growth, and the thorn is higher inflation and interest rates,” he added.

Rising household disposable income has fueled demand, increasing the impact on borrowers.

Consumer demand has strengthened thanks to sharp increases in household disposable income, supporting spending despite higher interest rates,” Yeaman said.

“Consumers continue to build confidence, government spending remains strong and private business investment is starting to pick up and demand is starting to outpace supply, putting upward pressure on inflation,” Yeaman said.

“The most important thing is that inflation is reemerging,” he said, a development that led to the Reserve Bank raising interest rates in February.