Tax forgone from negative gearing, capital gains tax concessions set to double

The cost to the Budget of providing negative gearing and capital gains tax concessions to property investors is set to double in the coming decade without any policy change, a new analysis shows.

Updated Parliamentary Budget Office figures show the revenue forgone, from providing tax breaks for landlords, would add up to $181.2 billion in the 10 financial years to 2034-35 — almost double the $93.1 billion in forfeited revenue in the decade to 2024-25.

The revenue forgone from negative gearing tax breaks, for landlords making a rental income loss, would more than double to $95.2 billion in the coming decade including this financial year, up from $37.6 billion during the previous decade.

The cost of the 50 per cent capital gains tax discount alone would soar by 54.8 per cent from $55.5 billion to $86 billion.

During this financial year, tax breaks for investors is forecast to deprive Treasury of $15.4 billion, including $6.9 billion for negative gearing and $8.5 billion for capital gains tax concessions.

But from 2027-28, negative gearing tax breaks are expected to become a much bigger drain on tax revenue forgone than the capital gains tax concessions.

Treasurer Jim Chalmers has flagged changes to negative gearing and the 50 per cent capital gains tax discount in the upcoming May Budget in the name of intergenerational equality.

Greens leader Larissa Waters, who obtained the confidential Parliamentary Budget Office analysis, said her minor party would support Labor legislation in the Senate to dilute negative gearing and capital gains tax concessions.

“The upcoming budget gives the government a once-in-a-generation choice to back regular people over wealthy property barons, billionaires and big corporations. The Greens would wholeheartedly support this,” she said.

A separate Australian Council of Social Service analysis of capital gains tax concessions, across 150 Federal elections, showed wealthy and inner-city electorates mainly held by teal MPs received more from the CGT discount when the tax revenue forfeited was divided by the population.

“It’s clear this tax break funnels billions into the wealthiest parts of our cities and country at the expense of those doing it tough,” said ACOSS chief executive Cassandra Goldie said.

Allegra Spender’s teal-held seat of Wentworth in Sydney’s eastern suburbs, Australia’s most expensive property market, received an average of $13,450, or nine times the national average of $1470 in 2022-23.

Another teal electorate, Warringah on Sydney’s northern beaches, received $7158 per person on average, ahead of Labor-held Bennelong on Sydney’s lower north shore on $6208 and the neighbouring teal seat of Bradfield on $5092.

The teal-held seat of Kooyong in Melbourne’s inner-east received an average capital gains tax break of $8093.

The teal-held seat of Curtin in Perth’s west received $5043 on average, per person.

The Labor-held seat of Brisbane received on average $3873 in expenditure from the CGT discount, ahead of Greens-held Ryan on $2707.

The 50 per cent capital gains tax discount debuted in September 1999, replacing a system of indexation that had existed from 1985.

The concessions introduced by John Howard’s Coalition government meant only half the capital gain on a residential property owned for 12 months or more needed to be declared on an investor’s tax return for that financial year.

Labor lost the 2016 and 2019 elections with a plan to halve the concession to 25 per cent and restrict negative gearing, first introduced in 1936, to brand new properties.