The Albanese government's capital gains tax (CGT) reforms are expected to trigger a significant outflow of Australian capital to international markets, including New Zealand, according to economists. The changes, effective from July 1, 2027, replace the existing 50 per cent CGT discount with cost-base indexation for assets held over 12 months. A minimum tax rate of 30 per cent on net capital gains will also apply, though assets acquired before the cut-off date retain the old discount on gains accrued prior to July 1, 2027.
Capital outflow to New Zealand
University of Tasmania senior lecturer Professor Maria Yanotti told SkyNews.com.au that the reforms would push investors toward jurisdictions with more favorable tax regimes. New Zealand, which has no capital gains tax, is a prime destination. Prime Minister Christopher Luxon has ruled out introducing a CGT, calling it an economic 'wrecking ball.'
Professor Yanotti said the 30 per cent minimum tax floor and indexation would increase risk and lower returns, especially in the short to medium term. 'The 2026 CGT reforms will most likely shift capital away from speculative, high-growth assets into inflation-hedged instruments, potentially international markets, and heavily on new builds and superannuation,' she said.
Investors may seek arbitrage in countries like New Zealand or Singapore. However, she noted that overseas investments carry foreign exchange risks and complex tax structures. A more likely outcome is that individual investors redirect capital into superannuation funds to benefit from lower internal tax rates.
Centre for Independent Studies Executive Director Michael Stutchbury said zero CGT in New Zealand, combined with a top personal tax rate of 39 per cent, provides incentives for entrepreneurs and globally focused Australian enterprises to operate from across the Tasman. Dual-listed companies may also shift headquarters or asset portfolios to New Zealand entities.
Impact on Australian innovation
Professor Yanotti warned that the reforms could disincentivise investment in early-stage Australian innovation. High-performing assets with high returns would be penalized, potentially discouraging entrepreneurs, angel investors, and venture capitalists. 'This may be particularly the case in the short to medium-term, until the market generates new expectations,' she said.
Mr. Stutchbury argued that a modest CGT is acceptable in principle, but the proposed increases could drive capital away. 'Together with zero capital gains tax, that provides an incentive for entrepreneurs and globally focused Australian enterprises to operate out of NZ - or Singapore or the US - rather than high-taxing Australia,' he said.
Property market implications
The reforms also affect the housing market. Investors purchasing new residential properties can choose between the old 50 per cent discount or the new indexation model, while retaining full negative gearing benefits. This is expected to fuel demand for new builds, but Professor Yanotti warned that inelastic supply could push up construction costs. 'Higher demand for new builds without responsive supply will push prices for new houses up, and more importantly push the cost of construction up,' she said.
First home buyers may be drawn to older, more affordable housing stock, but could face high renovation costs due to rising construction expenses. The combination of CGT and negative gearing changes may also cause a 'sharp cooling' or 'credit tightening' in property and equity markets, potentially slowing New Zealand's export demand as Australia is a major trading partner.
