Next week's federal budget will include changes to negative gearing, capital gains tax, and the taxation of trust funds, according to government sources. The measures are aimed at young voters and are expected to spark debate over housing, wealth, and intergenerational fairness.
The changes were part of Labor's 2019 election platform but will differ in design. Negative gearing will be curbed, the capital gains tax discount overhauled, and new rules imposed on trusts. The policy on franking credits, also part of the 2019 platform, will not be revisited.
Capital gains changes may reduce the 50% discount to 25%, or return to a pre-1999 inflation-based discount. The design question is whether the policy will be fully grandfathered for existing assets or have a transition. Negative gearing changes will be fully grandfathered, but it is unclear if they will cap properties, limit to new builds, or phase out entirely.
Economists expect changes could lead to some investors exiting the market, higher home ownership rates, modest house price decreases, and slightly higher rents, depending on design. Extensive grandfathering would reduce market effects and revenue but avoid accusations of changing rules for existing investors.
Treasurer Jim Chalmers has downplayed the revenue-raising potential, citing transition. Trust taxation changes are also planned but not finalised, with disagreement on the best approach. Trusts are popular in Australia for income splitting and tax reduction.
