The government’s Budget reforms on negative gearing and capital gains tax will not solve the housing crisis overnight, but they represent the most ambitious attempt this century to rebalance Australia’s tax system and address intergenerational inequality.

Treasurer Jim Chalmers’ fifth Budget is certainly the most ambitious of the Albanese government’s to date. It is probably the most consequential Budget since the first Budget of the Abbott Government, in 2014 – although, unlike that Budget, most of the measures in this one are likely to pass the Parliament. And although the tax reforms which are the centrepiece of the 2026-27 Budget are nowhere near as comprehensive as those introduced by Bob Hawke and Paul Keating in the mid-1980s, or by John Howard and Peter Costello in 2000, and they don’t involve as many dollars as Scott Morrison’s ‘three stage’ tax reforms of the late 2010s and early 2020s, they represent the most adventurous set of tax reforms seen so far this century.

For all that, there were almost no surprises in the Budget itself. To a greater extent than in any recent Budget, almost all of the ‘announceables’ in Tuesday nights documents had been leaked – intentionally or otherwise – in the weeks leading up to the Treasurer’s Budget Speech. That’s obviously given both supporters and opponents of the major measures in the Budget plenty of time to construct and hone their arguments.

Needless to say the most attention-grabbing elements of the Budget – and rightly so – were the changes to the income taxation system.

As widely foreshadowed, the Government will prevent purchasers of ‘established’ residential properties from being able to offset net losses on their investment against other income for tax purposes (‘negative gearing’) after 1 July next year – whilst retaining it for purchases of new dwellings (and for other assets such as shares), and ‘grandfathering’ existing property investments.

Additionally, the tax treatment of capital gains accruing after 1 July next year will revert from being taxed at half the otherwise applicable marginal rate (as has been the case since 1999) to being taxed at the full marginal rate less an allowance for the impact of CPI inflation on the cost base of the asset (the system which applied between 1985 and 1999).

This change will apply to existing investments (including those acquired before the capital gains tax was first introduced in 1985) – although........

© Pearls and Irritations