General Chalmers gathers the troops for a new tax war

February 25, 2026 — 2:00am

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Australia is about to enter another war about the tax system.

As a veteran of various taxing conflagrations and skirmishes – the GST War of 1998-2000, the Great Henry Tax Battle of 2010, the Franking Credit Dogfight of 2019 – it’s with a sense of trepidation that I enter into what is shaping as the Capital Gains Tax Pincer of 2026.

The capital gains tax concession is in the sights of Treasurer Jim Chalmers as part of a broader revamp of the federal government’s finances with the stated aim of dealing with “intergenerational equity”.

Vested interests on both sides are lining up to lob accusations at each other with all the subtlety and nuance of a UFC cage fight.

In 1985, Paul Keating brought capital gains into the income system as part of a reform package aimed at broadening the tax system while rewarding people and businesses for work and innovation.

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CGT (and the new fringe benefits tax) helped to pay for cuts on company and personal income tax and to stop the wealthy making off like thieves by reaping untaxed gains on assets.

A decade later, Peter Costello commissioned John Ralph to improve the business tax system.

Ralph proposed simplifying Keating’s CGT. Rather than calculating how much of your capital gain was due to run-of-the-mill inflation (which wasn’t taxed), you’d get a flat 50 per cent concession on your gains for assets held for at least 12 months.

According to the review, this would “enliven and invigorate the Australian equities markets” as people sank their money into shares, providing a fillip to publicly listed companies.

Costello correctly argued a flat 50 per cent concession would help simplify the CGT system.

But nowhere was there a mention of the property market and how the concession might affect it. Negative gearing, and its interaction with capital gains tax, was also absent from Ralph’s entire document.

There were those, almost solely community organisations, who warned that Australians wouldn’t rush to a stockbroker to buy shares – they’d be off to the real estate agent.

House prices started to accelerate after the concession’s introduction. We also know that instead of most landlords making money from their properties, a majority became negatively geared as they chased the benefit of higher-priced property.

Supporters of the current concession argue these two changes can’t be pinned on the CGT change alone. House prices around the globe started to lift as interest rates fell (though the big increase in negatively geared investors is more difficult to explain away).

In 2010, Ken Henry’s review of the tax system recommended the 50 per cent concession should be reduced to 40 per cent (with tax reduced on other savings like interest on bank accounts).

This financial year, Treasury estimates the concession will cost almost $22 billion in forgone revenue.

A huge proportion of that benefit flows to the top 10 per cent of income earners who, unsurprisingly, have the money to buy assets that appreciate in value.

That skew towards high-income earners has prompted some criticism more like the October Revolution outside the Winter Palace than concern over the nation’s tax system.

But that doesn’t mean the concession, as analysis by independent think tank e61 has suggested, is problem-free.

According to e61, the way the concession interacts with the property market (and property taxes) means that it “distorts the way Australians work, save, invest, and finance their investments – generating broader productivity costs and reducing the ability for the tax system to raise necessary revenue”.

There’s plenty of economic research around what might happen if you change the CGT concession (you can check out some here and here).

You might reduce house prices a little, you might push up rents a little and there may be a small drop in house construction.

Much comes down to what you do with the revenue raised by reducing the concession.

If Chalmers decides to slice the CGT concession simply to raise cash that he then spends on government services, then it will be a failure.

But if it is part of a broader approach, such as using the revenue to reduce the tax burden on workers or to use it as some sort of productivity-enhancing incentive, then Chalmers and the government will have achieved real reform.

As one of the country’s sharpest and political minds, Bill Kelty, told the current Senate inquiry into the CGT this week, the tax system is “terrible for young people” and needs to change.

Kelty reckons young people are the collateral damage of a tax and economic war that rewards superannuated, elderly generals like himself (and their children).

The property sector is already railing that any change to the concession will mean investors build fewer homes.

That is plausible, except investors didn’t go on a construction splurge when the concession was introduced and now, after more than a quarter of a century of its operation, still haven’t.

In 2025, of the 179,000 new mortgages taken out by investors across the country, 83 per cent were to buy an existing dwelling (and 86 per cent in NSW).

As the NSW Treasury recently noted, the CGT discount is part of a suite of problems contributing to the nation’s housing crisis.

“The CGT discount, alongside other tax settings (such as negative gearing), skew incentives towards property investment. This leads to increased investment demand for housing, leading to higher prices, contributing to housing affordability pressures and working against other policies such as first home buyer assistance,” it said.

If that’s not a reason to go over the top in the fight for tax reform that makes the economy work better, rewards effort rather than asset collection and might help younger Australians own a home, then I’m not sure what is.

So, once more into the breach we go.

Shane Wright is a senior economics correspondent and regular columnist.

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