May Budget looms as a turning point for middle-income Australians
There is a statistic that ought to stop any mortgage broker in their tracks. Roughly one in five Australian households owns an investment property. In Britain, the equivalent figure is closer to one in eighteen. In the US, one in thirteen.
Australia has not simply built a property-investing culture; it has, over the course of a quarter century, constructed what is by any reasonable international measure the most individually concentrated residential investment market in the developed world. And the federal government is now, with some deliberation and considerable political caution, considering pulling at the thread most responsible for holding that structure together.
The capital gains tax (CGT) discount – the Howard-era concession that since 1999 has allowed individuals to reduce a taxable gain on any asset held for more than twelve months by precisely half – is under formal scrutiny for the first time in a generation.
A Senate Select Committee established in November 2025 delivered its report in March of this year, finding that the discount, in combination with negative gearing, has shifted housing ownership away from owner-occupiers and towards investors, contributed to wealth and income inequality, and distorted the allocation of capital across the economy.
The committee did not reach unanimity – Coalition senators filed a dissenting report, arguing the discount supports rental supply and that the primary cause of unaffordability is constrained supply rather than tax policy – but the majority finding, backed by Labor senators, was the starkest official assessment of the concession since it was introduced.
The budget, scheduled for 12 May, now looms as the moment of decision.
Treasurer Jim Chalmers has neither committed to reform nor ruled it out. Treasury is understood to be modelling a targeted reduction of the discount from 50% to 33%, applied only to residential investment properties, while leaving the treatment of shares and other assets unchanged.
Independent Senator David Pocock has proposed the more surgical approach of removing the discount entirely for investment properties purchased after a fixed date, while preserving it for newly constructed dwellings held beyond three years – a design intended to redirect investor capital towards supply rather than competition for existing stock.
Grandfathering, under any of the scenarios under public discussion, is considered near-certain. The political lesson of 2019, when Labor took a broader policy to two elections and lost both, has not been forgotten.
How Australia became an outlier
To understand why any change to the CGT discount matters so acutely to mortgage brokers and their clients, it is necessary to understand how thoroughly the current settings have shaped the market in which they operate.
The 50% discount introduced in 1999 replaced an inflation-indexing model that had produced variable and complex outcomes. Its effect, combined with the pre-existing ability to offset rental losses against personal income through negative gearing, was to make residential property uniquely attractive as an investment vehicle for middle-income Australians – not merely the wealthy.
The numbers bear this out in ways that tend to surprise those accustomed to international comparisons.
Approximately 2.24 million Australians declared investment property ownership to the Australian Taxation Office in the 2020-21 financial year. Tax data compiled by the Reserve Bank suggest that around 10% of all adults over the age of fifteen hold an investment property – a rate that increased steadily from the mid-1990s through the mid-2000s before stabilising.
An InfoChoice survey conducted in 2024 placed the figure at 18.3% of all Australians. The variations in these numbers reflect different methodologies, but the central fact is not seriously disputed: Australia's rate of individual residential property investment is approximately two to three times that of comparable developed economies.
The reasons are not hard to identify.
No peer nation combines a 50% capital gains discount, full deductibility of losses against personal income, a mature mortgage market, a cultural disposition to view bricks and mortar as a retirement vehicle, and a superannuation system that – for many middle earners – still leaves a gap in retirement planning that a negatively geared property has long appeared to fill.
Britain has buy-to-let landlords, but no equivalent of negative gearing. The US has mortgage interest deductibility, but no equivalent of the CGT discount for investment property specifically. Canada has neither in the same combination.
Australia assembled a policy architecture that was, in aggregate, unlike anything in the developed world, and the market responded accordingly.
What change would mean in practice
For mortgage brokers, the significance of the CGT debate is not primarily ideological. It is practical, immediate and potentially consequential for a large proportion of the client base.
The Senate inquiry noted that, as recently as 2020, investors' share of new loan approvals was approaching 40% in some states. That is a substantial portion of any active broker's book.
A reduction in the CGT discount applied prospectively – that is, only to properties purchased after a legislated commencement date – would, by the analysis that has emerged from the inquiry process, produce several simultaneous effects.
Existing investors, shielded by grandfathering provisions, would face a powerful incentive to hold rather than sell, since realising a gain under the old rules would require a transaction.
Properties that might otherwise have rotated back into the market for owner-occupiers would instead remain in investment portfolios. At the same time, the attractiveness of acquiring new investment properties would diminish for those currently modelling returns under the assumption of the full 50% discount.
The mortgage broking community would feel this bifurcation directly. Demand for investor loans on existing properties could weaken materially in the period following any announcement, as prospective investors recalibrate returns under reduced concessions.
Conversely, the window between any announcement and a commencement date – if, as in most scenarios being modelled, grandfathering is applied from a fixed forward date – could produce a surge in investor loan applications as clients seek to lock in purchases under existing rules. This precise dynamic was observed in New Zealand following that country's investor tax changes in 2021, when transaction volumes spiked sharply before the cutoff and fell steeply thereafter.
The clients most affected
The profile of the Australian property investor is frequently mischaracterised in the political debate, and brokers are better placed than most to understand who is actually in the room.
ATO data for 2020-21 show that 67% of property investors had a taxable income below $100,000. Nearly three-quarters hold only a single investment property. Less than 1% hold six or more.
The investor class, in other words, is not primarily composed of wealthy speculators accumulating large portfolios: it is composed, in the main, of working-age Australians holding one extra property as a retirement supplement.
This matters for the advice conversation that brokers will increasingly be asked to have.
A client who purchased an investment property five years ago with a 30-year horizon, whose retirement planning assumed a capital gain subject to a 50% discount, is not necessarily a sophisticated investor capable of absorbing a sudden change in the assumptions underlying that plan.
Grandfathering mitigates the retrospective impact but does not eliminate uncertainty; the detail of the legislation, if it proceeds, will determine whether clients' existing positions are as protected as the headline promise suggests.
The May Budget will provide the first definitive signal. What is already clear is that the political climate in Canberra has shifted further than at any point since 2019, the Senate has delivered findings that Labor senators declined to disown, and the Treasurer has kept options open in a manner that earlier Labor governments did not.
Whether that adds up to legislative change or to another deferral – the discount having survived several previous cycles of scrutiny intact – will become apparent within weeks.
For the mortgage broking industry, the interval between now and budget night is the moment to be across the detail, current with the policy debate, and ready for the conversation that a significant number of clients are likely to want to have.
