UPDATE: The Albanese government is considering a significant change to negative gearing rules, potentially capping the number of homes investors can negatively gear to just two. This urgent development comes as the government seeks to address rising pressure for fiscal reforms ahead of the federal budget scheduled for May 2026.
Government sources confirm that Treasury has been tasked with modeling the impacts of these changes, as concerns mount over housing affordability and budgetary constraints. Health Minister Mark Butler stated the government’s commitment to creating a more equitable housing landscape for younger Australians, though he refrained from detailing how seriously the reforms are being evaluated.
“As we head into the 10 weeks leading into the budget, there’s a veritable tsunami of articles speculating about what we might or might not be considering,” Butler remarked, alongside Opposition Deputy Leader Jane Hume, on the morning show Sunrise. “We’ve been very clear about our tax policies… but we’ve also been clear that we think there is an issue around young Australians breaking into the housing system.”
Negative gearing enables investors to deduct losses from rental properties from their taxable income, reducing their tax burden. The proposed reforms are being considered alongside potential changes to the capital gains tax discount, which currently allows property sellers to pay tax on only 50% of their profits if held for over one year. Notably, the family home remains exempt from this tax.
Historically, the Labor Party has shied away from altering negative gearing and capital gains tax rules following defeats in the 2016 and 2019 elections. However, worsening housing affordability has prompted renewed scrutiny of these policies. Treasurer Jim Chalmers has made productivity-boosting reforms a key agenda item, which includes revisiting negative gearing and capital gains tax adjustments.
The government’s preferred focus remains on the capital gains tax discount, but they are weighing restrictions on negative gearing after receiving Treasury’s analysis on these policy changes. In a response to the potential reforms, Opposition Leader Angus Taylor expressed skepticism about the government’s plans, claiming it is “highly unlikely” the Coalition would support changes to negative gearing. Taylor criticized Labor for targeting working Australians who have invested in properties as part of their financial future.
“They’re coming after people who have invested over a period of time, often tradies, nurses, all sorts, who have bought investment properties as their nest egg for their future,” Taylor added. Hume echoed this sentiment, asserting, “If I’m a landlord and you tax me more, I’m going to push the rents up.”
Critics argue that limiting negative gearing could free up housing supply for first-time buyers, yet Hume countered that the solution lies in increasing overall housing supply, not in taxing investors. “We all know that supply is the problem in housing. It’s not how much you’re taxed,” she stated.
Current data from the Australian Tax Office reveals that during the 2021-22 period, approximately 950,000 Australians were negatively geared, while 1.3 million were either positively or neutrally geared. Recent estimates indicate that the revenue lost from negative gearing could reach around $6.9 billion in the upcoming fiscal year, alongside an approximate cost of $5.4 billion from capital gains discounts on residential properties.
The ongoing debate highlights the profound implications for housing affordability and investor behavior across Australia. As the government prepares for the May budget, all eyes will be on their next steps regarding these pivotal reforms.
Stay tuned for further updates as this story develops.
