Commonwealth Bank Economists Say Negative Gearing Could Be Scrapped in Federal Budget

Economists Luke Yeaman and Harry Ottley warned ’major changes to CGT and negative gearing appear locked in.’

Two men roof a house in Western Australia on April 7, 2026. Susan Mortimer/The Epoch Times

Economists from Australia’s largest bank say major changes to negative gearing and capital gains tax (CGT) are on the way in the May 12 federal budget.

Chief Economist Luke Yeaman and economist Harry Ottley of the Commonwealth Bank warned Treasurer Jim Chalmers was preparing to fully scrap negative gearing for property investments.

“Based on media commentary, it appears the government will go further than we expected,” the economists said (pdf).

They pointed to the potential return of capital gains tax indexation across all asset classes, not just residential housing, and the possible removal of negative gearing, not just capped at the second property.

“This will deliver much larger tax revenue, opening the door to other ambitious tax reform or spending measures on the night,“ they said. ”We expect the impact on house prices to be relatively modest.”

How Do Negative Gearing and Capital Gains Tax Work?

Negative gearing allows property investors to deduct rental losses from their overall taxable income, reducing the amount of tax they pay.

While capital gains tax is applied to the profit made when an asset such as property is sold, with a discount available for assets held over a certain period.

Currently, investors benefit from a flat 50 percent discount on capital gains tax for assets held longer than one year.

For example, an asset purchased for $500,000 and sold two years later for $700,000 delivers a $200,000 capital gain. Under the existing rules, only half of that gain, or $100,000, is added to the investor’s taxable income.

The proposed reform would replace this flat discount with inflation indexation, returning to the system used before 1999.

This means investors would be taxed only on the real capital gain after adjusting for inflation.

“This is a more defensible reform than an arbitrary cut to the discount, but it does mean that outcomes will vary depending on economic conditions,” the CBA analysis noted.

Chalmers Has Not Ruled Out Changes

Treasurer Jim Chalmers has stopped short of ruling out the earmarked changes.

“We’re obviously considering a whole range of changes in the tax system, but we haven’t changed those policies. We haven’t taken any decisions on those policies …” he said on April 20.

He has previously pointed to “intergenerational unfairness” in the housing market, suggesting the government is exploring ways to redistribute wealth to younger Australians.

“I think the housing market is where some of those intergenerational issues are most obvious,” he said.

“We are working through a range of options to see if we can deal with them or address them in a responsible way.”

The Epoch Times has contacted the Treasurer’s office for comment.