There is a particular kind of political language that signals a policy change is coming without quite announcing it. Jim Chalmers deployed it on Wednesday when asked whether his department had been modelling the revenue impact of limiting negative gearing to two investment properties. "We haven't changed our tax policies," the Treasurer said. He did not say Treasury hadn't looked at the numbers. He did not rule out future changes. And he pointedly observed that it was "not unusual this far out from the budget" for Treasury to consider other options.
For anyone who watched Chalmers and Prime Minister Anthony Albanese use similar language in the lead-up to the 2024 revision of the stage 3 tax cuts, the framing felt familiar. That decision broke a firm election commitment but ultimately proved popular, redirecting more of the benefit toward lower-income earners. The question now is whether the May 12 federal budget will bring a similarly calculated reversal on property tax settings.
Negative gearing allows property investors to deduct the net losses on rental properties from their taxable income. Alongside the capital gains tax discount, which halves the tax liability on assets held for more than twelve months, it forms the backbone of Australia's tax incentive structure for property investment. According to the Property Council of Australia, approximately 1.3 million Australians currently use negative gearing. A previous analysis of Australian Taxation Office statistics found that just under 30 per cent of those taxpayers held two or more investment properties, meaning a cap at two properties would affect a meaningful but not overwhelming share of the investor base.
The fiscal stakes are substantial. Figures from the Parliamentary Budget Office show negative gearing costs the federal budget close to $7 billion each year. The CGT discount on residential properties adds another $5.4 billion. Both concessions exist against a backdrop of structural deficit; last year's budget papers projected the national accounts would be $180 billion in the red between 2025 and 2029. For a government that has staked its economic credibility on responsible fiscal management, the arithmetic of reform has obvious appeal.
The political history here is complicated. Labor went to the 2019 federal election with a policy to limit negative gearing to new housing and reduce the CGT discount from 50 per cent to 25 per cent. The party lost that election in what many analysts attributed, at least in part, to voter anxiety about property values. Albanese subsequently ruled out changes to negative gearing entirely. That commitment now appears to be softening, with Chalmers framing the issue in generational terms. "We are alive, obviously, to the intergenerational issues in the housing market and in the tax system," he said on Wednesday.
A substantial body of economic opinion supports reform. Economists, unions, and housing advocates have argued for years that the combined effect of negative gearing and the CGT discount inflates asset prices by tilting the tax system toward existing property owners and away from first-home buyers. The logic is straightforward: when the tax code rewards owning investment properties over other asset classes, demand concentrates in residential real estate, pushing prices higher.
The counterargument is not without force, however. Critics of reform, including industry groups and sections of the Coalition, contend that reducing incentives for private investment in rental property would constrict rental supply at precisely the moment Australia needs more of it. With vacancy rates tight in most capital cities and rents rising sharply, the concern is that landlords who exit the market would sell to owner-occupiers, shrinking the pool of available rentals and pushing rents even higher in the short to medium term. These are not fringe concerns; they reflect genuine supply-side dynamics that reform advocates need to address seriously.
The federal opposition has confirmed it would resist any effort to wind back either concession, arguing the government risks destabilising the investment environment. Whether that opposition would matter is another question. The government could, in all likelihood, secure passage of any reform through the Senate with the support of the Greens, who have long championed changes to property taxation.
What emerges from Wednesday's exchange is not a policy announcement but a very deliberate signal. Chalmers has the political and fiscal motivation to act. He has, it appears, the Treasury analysis to support it. What he does not yet have is a public commitment, and the distance between those two points is where Australian housing policy currently sits. The May budget will reveal whether the government is prepared to close that gap, or whether the memory of 2019 remains too vivid to risk it.