Independent economist Saul Eslake has told a Senate committee that warnings that Labor’s proposed changes to negative gearing and capital gains tax will trigger rent increases are not supported by evidence.
Appearing before a parliamentary inquiry into the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Eslake argued that the debate has focused too heavily on the number of rental properties investors might sell, while overlooking what could happen to rental demand.
The legislation, which has already passed the House of Representatives, would replace the 50 percent capital gains tax discount with an inflation-adjusted model and a minimum 30 percent tax rate.
It would also limit negative gearing to newly built homes, and impose a minimum 30 percent tax on retained income in discretionary trusts.
Critics said the changes would discourage property investment, reduce rental supply and push up rents. But Eslake disagreed, arguing that the tax reforms will also reduce the demand for rental housing.
“I think that will ... potentially reduce significantly the demand for rental housing by enabling more people who are currently renting because they can’t afford to buy their own home to be able to afford to buy their own home,” he told the Economics Legislation Committee on June 15.
The economist also said even if some investors left the market, the effect would be offset by fewer people needing to rent.
The Impact of Negative Gearing
Eslake also challenged claims that abolishing negative gearing would cause rents to surge, as they did when the Keating government temporarily introduced the measure in the mid-1980s.While rents rose in Sydney and Perth during that period, he said both cities were already suffering from extremely low vacancy rates. In other capital cities, rent growth either remained stable or slowed.
“Rates in rent inflation in other cities either did not rise at all or fell, which is not what you would have expected if the change to the CGT regime and negative gearing at that time was the major driver of it,” Eslake said.
However, the economist pointed out that there are problems with the legislation.
He proposed changes in three areas, arguing the legislation fails to adequately address start-up businesses and employee share schemes, could unfairly increase taxes for some lower-income taxpayers under the proposed 30 per cent minimum CGT rate, and should allow occasional capital gains recipients to average gains across multiple years.
Eslake said such changes would address legitimate concerns without undermining the broader reforms.
The bill now faces a more uncertain path through the Senate, where the Labor government will need the support of the Greens and crossbench senators to secure its passage.
