Originally published in the Australian Financial Review, 17 February, 2026.
If new shadow treasurer Tim Wilson wants to live up to the rhetoric that the refreshed Coalition has truly changed, the looming capital gains tax reform debate presents a golden opportunity.
So far, the Coalition’s instinct under new leader Angus Taylor appears to be the same as it was under Sussan Ley: just say no to any CGT changes.
This is a mistake. It would sideline them from the debate to come, while gifting the Greens the ultimate say in whatever change winds its way through the Senate.
For Wilson, striking a more nuanced position is his first test. An aspirant for higher office, he has a chance to show he can balance voter preferences while orienting an often stubborn Coalition towards meaningful policy outcomes.
Reject CGT changes outright, and Wilson will be tying himself to an outdated tax policy almost certain to change whether he likes it or not.
The Coalition may be tempted to elevate defence of the status quo as a moral cause. But the CGT reform is not as scary as they would make you believe. The amount we collectively spend on the CGT discount on housing each year should not be seen as a gift to the rich nor as an entitlement for virtuous wealth creators. Rather it should be viewed as a $10 billion nudge towards what we want Australians to invest, or not invest, in.
“Will Tim Wilson die on the hill for an old and increasingly unpopular Howard-era tax break, and look even more out of touch?”
Right now, we’re nudging investors towards speculating on existing homes instead of building new ones. That’s not good or evil – it’s just dumb.
For 25 years, our tax system has sent the same message to property investors: buy an established house in a hot suburb, and you’ll get 50 per cent off your capital gains tax. Take a bigger risk and build something new that adds to housing supply? Exactly the same sweetener. Is it any wonder rational investors choose the path of least resistance?
Established detached houses offer the fastest capital growth with none of the development risk. So investment capital floods into existing housing stock, bidding up prices and pushing first home buyers further from the market. Meanwhile, the new construction pipeline, the very supply we desperately need, remains starved of investment.
This problem is not the greed of Boomers or anyone else. It’s a failure of policy design. We’ve had a powerful incentive pointed in the wrong direction for decades, and are reaping what we sowed.
Many proposals merely suggest we should just reduce the discount to 25 per cent or so. But this is only part of the solution.
Slashing the discount across the board might dampen investor demand in housing, which could take some heat out of prices. But it would do nothing to redirect that investment towards new supply.
Conservative defenders of the status quo warn that any change will crater supply and send rents spiralling. This is totally unconvincing.
The current settings are not delivering the supply we need anyway. We’re tens of thousands of dwellings short of our national housing targets every month. If tax concessions were turbocharging construction, we would surely notice it.
That’s why Treasurer Jim Chalmers should hopefully be considering a third option that both camps are currently overlooking: recalibrating the discount to actually serve our housing goals.
The McKell Institute has proposed precisely this. Rather than uniformly cutting or preserving the discount, we suggest a housing-only recalibration: reduce the CGT discount to 35 per cent for established detached dwellings, leave it at 50 per cent for new detached houses. Over time, this will see a bulk of properties shift the 35 per cent discount rate.
Richard Holden and I even modelled a further increase to the discount for new apartments to stimulate even more supply, and shift more capital away from established dwellings, which we estimate could deliver 130,000 new homes by 2030. But the two-tiered path – 50 per cent for new builds, 35 per cent for old – remains a simpler option.
The logic is straightforward. We need more houses, so offer investors a better deal if they help build it. If they would rather speculate on an existing house, they can still do that, but you get a much smaller tax benefit.
Because after all this is not about punishing investors, or discouraging investment. There’s nothing inherently wrong with wanting to invest in Australian property. But the tax system should channel that aspiration towards our national housing goals, not against them.
The treasurer has repeatedly reiterated that he wants tax reform ideas that are “specific and practical” and “budget neutral at minimum”. The productivity roundtable he convened last year explicitly invited proposals meeting these criteria.
The McKell Institute proposal fits his criteria like a glove. It doesn’t require abolishing anything. It doesn’t attack investors as villains. It simply redirects an existing incentive towards more productive ends.
If this type of nuanced, supply focused and housing-only reform characterises the CGT reform the treasurer does pursue, the Coalition will face a stark choice.
Will it die on the hill for an old and increasingly unpopular Howard-era tax policy, and look even more out of touch? Or will it embrace the public’s demand for change, and meaningfully work with the government to deliver a reform whose time has clearly come?
Ed Cavanough is CEO at the McKell Institute.
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