Why the latest capital gains tax tinkering infuriates me

Folks, I can already see how this plays out.

In May, the Treasurer will stand on the Parliament House floor, thump his chest, and point the finger at landlords - the most convenient villains in Australian politics. 

They'll be told the 50% capital gains tax discount is an outrageous loophole; that property investors are fuelling house prices, exploiting tenants, and hoarding wealth at the expense of “fairness”.

The Budget will be wrapped in soothing language about “asking those who can afford it to pay a little more”. A fairness sermon. A moral lecture by those who themselves are among the most prolific real estate investors in this country (see here and here).

What it actually is, based on what’s been leaked, is a lazy, poorly thought-out policy lifted straight from Canada’s failed experiment, where the previous Trudeau government tried to make 66% of capital gains taxable instead of 50% after realising - shockingly - that obscene government spending comes at a cost.

The policy didn’t survive public backlash. The minister behind it was eventually demoted and pushed out of cabinet. When Mark Carney became Prime Minister, his first act was to kill that proposed CGT change.

So what, exactly, do Anthony Albanese and Jim Chalmers think will happen if they try it here?

Let’s talk about the numbers

For decades, Australia made a simple promise to long-term investors: hold an asset for more than 12 months and receive a 50% CGT discount.

That wasn’t charity. It was an incentive design ushered in by the Howard Government in 1999.

It discouraged flipping, speculation, and short-termism across asset classes. It rewarded patience, capital risk, and long-term stewardship - especially in property, where leverage, maintenance, and human responsibility are unavoidable.

Holding property is not passive. It involves financing risk, regulatory risk, emotional and physical labour and constant real-world problem solving.

Now let’s put real numbers on this. Based on what's reported Albanese - potentially - wants to dilute the discount to just 25% (other options being considered include a 33% rate or an inflation-adjusted calculation).

Let's say you realise a $500,000 capital gain after deductions on an investment property held for more than 12 months, and let's assume you're an individual investor who held the property directly and had no other income for the year.

• Under current rules, $250,000 is taxable. Using MoneySmart’s calculator, that’s about $78,638 in tax payable.
• Under the proposed change to a 75% inclusion rate, $375,000 becomes taxable. Your tax bill jumps to $134,888.

That’s an extra $56,250 in tax - a whopping 71% increase - from a single policy tweak.

And that’s before we acknowledge reality: most property investors aren’t idle millionaires. They’re dual-income, middle class households with PAYG salaries. Add this gain on top of salaried income and you’re dumping six figures straight into the top marginal tax bracket.

This isn’t “fairness" - it’s an aggressive shifting of the goalposts on the predominantly middle class investors who tend to own one investment property.

And they didn’t buy it for fun, or to “fuel house prices”. They bought it to reduce reliance on the paltry Age Pension - something governments constantly claim they want.

Rents are high because the system has a problem

Landlords are quasi-business owners. They provide housing in exchange for rent and the prospect of capital growth, while carrying risks that governments, tenants, insurers, and markets don’t.

Rents aren’t high because landlords are evil. They’re high because costs have exploded, housing supply hasn’t kept up with immigration levels set by government policy, and a strong economy has intensified demand.

Together, these forces push up house prices, leaving landlords to absorb:

• Mortgage repayments on costlier investment property loans at higher capital values.
• Council rates increasingly riddled with special variations.
• Insurance premiums that soar while covering fewer disasters.
• Exploding strata fees, with inevitable special levies.
• And then the real killer: repairs and capital works. If you think you made good cashflow for a year or two, just you wait until the eventual roof, floor and bathroom replacement comes to bite your left and right pockets, plus your annual bonus.

Most properties purchased today run at a loss. High rents aren’t greed - they’re necessary amidst the dynamics of prices, yields and expenses. Which leads me to frame the potential knock-on effects of a CGT discount dilution.

Forced delipidation and higher rents

As an example, the past two years have been brutal for my Western Sydney townhouse.

Between a massive special levy for common property repairs, a denied insurance claim and a tenant trashing the unit, I’m looking at tens of thousands out of pocket just to restore the place to a standard where tenants have a quality, modern home to live in.

Over Christmas, my 70-year-old dad and I were on our hands and knees, running between Bunnings and hardware stores to save costs by working day and night to address the issues and clean up the property ourselves.

Under the radar, amidst the property debate, are regular Australian landlords who work tirelessly to maintain their properties and deal with constant surprises.

The saving grace is that accumulated rental income provides a small buffer, but more importantly, the long-term CGT discount makes the risk, stress and effort worthwhile.

Then this CGT proposal comes along. The moment I read it, I pulled the plug on major works. I suspect many landlords will do the same. 

Why pour time, money and stress into new kitchens, bathrooms and fresh paint if the government plans to confiscate a much larger share of the reward - the very thing that makes property ownership tolerable?

Even the Property Investment Professionals of Australia (PIPA) has issued a stark warning: changes to CGT could trigger a wave of investor sell-offs and “deepen Australia’s rental crisis.”

According to the 2025 PIPA Investor Sentiment Survey, 35% of investors said they would stop investing in property if the CGT discount were cut to 25% after 12 months of ownership.

Now, why would that deepen the rental crisis?

• Because fewer investors means fewer rental properties, causing vacancy rates to plummet closer to zero.
• Investors and builders lose the appetite to build new homes and renovate existing ones.
• And for those who stay, the deterioration of future returns will inevitably push some to try to claw it back through significantly higher present rents.

Uncertainty kills investment. Governments seem to keep forgetting this.

The fiscal failure and convenient scapegoats

Australia is still a great country. But what makes a country great is stability - rules you can trust, incentives that don’t vanish overnight, and governments that live within their means.

That stability is eroding.

Yes, debt exploded during COVID. That was unavoidable. What’s concerning is that it kept rising long after the emergency ended - see below.

According to the Institute for Public Affairs, 55% of total economic growth since the current government was elected has come from government spending - higher than under any party on record.

And instead of confronting that spending addiction, the solution is… higher taxes.

Few figures foresaw this more clearly than Peter Costello, one of Australia’s great Treasurers, who has repeatedly warned about the long-term consequences of rising debt. In a 2023 interview (I've provided the link below), he was blunt:

“In Australia, we’re heading up to a trillion dollars of debt. Nobody thinks we’ll pay it back. Nobody’s got a plan to pay it back.”

“We haven’t balanced the budget now for 15 years… we’ve egged up our total debt to GDP from about 10% of GDP to 60%.”

“Instead of going into the next crisis at 10% debt, we’ll go in at 60. We’ll come out at 100… and then 200.”

“Every time you ratchet up debt, every time you ratchet up spending, and inevitably therefore ratchet up tax, the government expands.”

This isn’t about housing. It’s about a government that spent too much, borrowed too much, and now needs a convenient target to fit into its narrative about generational fairness; a distraction from its own debt problem.

Landlords are first.

But once the beast tastes blood, it never stops.

• Today it’s property investors.
• Tomorrow it’s small business owners.
• And after capital floods out of property and into shares and super - who knows?

Again, Canada has attempted this tactic. Carney, regarded as one of the world’s great economists, cancelled the discount reduction now being canvassed in Australia, warning it would stop “incentivising builders to take risks and rewarding them when they succeed,” while creating unnecessary angst for investors.

I’m open to paying more tax if it’s done properly - holistically, proportionately, and as part of genuine reform. What’s being proposed now isn’t that.

Singling out one group of predominantly mum and dad investors to fund someone else's spending habits is unfathomable. It should concern every Australian about whose pocket the government will reach into next.

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Watch Peter Costello's interview

The former Treasurer discussed the implications of higher spending on current and future generations of Australia via higher taxes back in 2023.