The Albanese government has locked in a trio of tax reforms for next week's budget. For brokers with investor clients, the conversations start now
Today's Federal Budget is shaping up to be one of the most consequential in recent memory, with property investors and homeowners alike watching closely to see how new fiscal policy will reshape their spending and investment decisions.
Changes to negative gearing, the capital gains tax (CGT) discount, and the taxation of discretionary trusts are all but confirmed – pointing to the most significant overhaul of investment property taxation since the Howard government introduced the 50% CGT discount in 1999.
Multiple government sources have confirmed the package is the centrepiece of a Budget pitched squarely at Millennial and Gen Z voters, who now constitute a majority of the electorate.
The political backdrop is remains divisive: Investor loans now account for 40% of all new housing finance commitments, while first-home buyer loans have fallen to just 22% – a ratio that reform advocates say reflects decades of skewed tax incentives.
But some experts, including Skip Loans co-founder Mario Emmanuel, argue that all the talk over wealth taxes misses the point entirely – punitive income taxes and elevated government spending should be the real focus of fiscal policy.
Indeed, fresh UBS analysis suggests higher government spending will increase the likelihood of further interest rate hikes from the Reserve Bank of Australia (RBA). “The budget overall remains stimulatory,” said UBS chief economist George Tharenou in a research note. “The main driver of that is spending growth, which has been booming.”
Another rate hike would push the cash rate to highs not seen since the late-2000s, which would hit borrowers where it hurts – their wallets.
What's expected to change
Negative gearing will be fully grandfathered for existing properties, but future acquisitions face tighter rules. A two-property cap is the most widely reported option, though limiting gearing to newly built properties is also on the table.
The CGT discount is facing a significant overhaul. The government is expected to scrap the current 50% CGT discount on assets held for more than a year and return to the pre-1999 system of taxing only inflation-indexed gains.
Trusts remain the least-resolved element. Changes are confirmed in principle, but the mechanism is still being debated. Labor's 2019 policy proposed a 30% minimum tax on trust distributions – a similar model is expected, though the complexity of nested trust structures means implementation will be contentious.
What the data says
A Money.com.au survey found that 61% of property investors would reduce their market exposure if both reforms proceed – 39% citing CGT changes and 22% citing negative gearing caps as their trigger.
Industry modelling by Qaive and Tulipwood Economics warns that combining a CGT discount cut with negative gearing restrictions could slash dwelling starts by tens of thousands of homes, pushing rents 2.4% higher by 2029-30.
Outgoing FBAA chief Peter White has cautioned against reforms that hurt the very people they're intended to help.
“While I commend the government for wanting to open up more housing, these changes will disadvantage the very people it seeks to help – younger Australians, as well as many other people on lower incomes,” said White.
“The theory that this will drive down the cost of housing to the extent where someone who can’t currently afford to service a mortgage and enter the property market will suddenly be able to is overly simplistic and ignores the many other factors in loan approval," added White.
However, the Grattan Institute argues that the CGT discount and negative gearing arrangements distort investment decisions, increase price volatility in property markets, and put upward pressure on house prices.
NSW Treasury backs removing or reducing the CGT discount, estimating it cost the government around $23 billion in foregone revenue in the 2024–25 financial year alone.
What brokers should do this week
Although the Budget will be announced on Tuesday, it is expected that CGT and negative gearing reform starting dates will be pushed back to 2027. However, fortune favours the well-prepared.
Three priorities stand out.
Call your investor clients before they call you. Many will have seen the coverage and have questions – a proactive broker deepens trust and may unlock pre-budget purchase activity from clients sitting on approved finance.
Flag the grandfathering window explicitly. Clients who are mid-process on an investment purchase need to understand the potential deadline and what it means for their position.
Alert any clients holding property through family trusts to speak to their accountant urgently. Any restructuring could have implications for lending entity, loan structure and serviceability – all things that flow back to you.
As MPA has reported, property investor tax hikes now look all but confirmed, with the Greens giving Labor the Senate numbers to get it done. The era of unchanged investment property tax settings is ending. The brokers who brief their clients now will be the ones those clients call first when the dust settles.
The federal budget will be delivered by Treasurer Jim Chalmers on Tuesday 12 May.
