Capital gains tax is once again the subject of parliamentary debate, with Treasurer Jim Chalmers declining to rule out options for reform.

Along with negative gearing, the capital gains tax discount has long been suggested as one cause of Australia’s housing affordability crisis.

The tax applies to the capital gain when an asset is held for more than a year, and it currently includes a “discount” of 50% on the total gain as a nominal offset for inflation.

These policies make speculative investment in housing more attractive, driving up prices and making it harder for first home buyers.

Australia only introduced a capital gains tax in 1985, applying it to all gains made from investments. Importantly, the family home was not included, but investment properties were. Originally, the tax applied to the gain in value above inflation, known as the consumer price index (CPI) method.

In 1999 the Howard government, informed by the Ralph Inquiry, changed the way capital gains tax was calculated. A flat “discount” of 50% was applied to capital gains, rather than adjusting the price by inflation. This figure was an estimate given the limitations with the available data.

Each year, Treasury calculates the costs of tax policies. This data reveals that in 2024–25 the 50% discount cost the budget an estimated $19.7 billion. This is partly driven by increases in housing prices which have far outpaced inflation, as shown........

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