Treasury has backed claims that targeted tax reform could meaningfully improve housing access for first-time buyers, according to evidence presented to a federal parliamentary inquiry — while former Reserve Bank governor Bernie Fraser made headlines with the explosive allegation that a "cartel" of vested interests, including politicians themselves, was actively working to prevent any policy that might lower house prices.
The testimony, delivered to the inquiry examining the chronic shortage of affordable housing across Australia, adds fresh momentum to the long-running debate over whether the federal tax treatment of investment property is inflating prices beyond the reach of younger Australians and locking an entire generation out of home ownership.
A cartel with something to protect
Fraser's choice of the word "cartel" is deliberately confrontational, but the underlying point deserves serious engagement rather than reflexive dismissal. Australia's residential property stock has become one of the most significant repositories of private wealth in the country. For those who already own property — and that includes many sitting members of parliament, whose investment portfolios are a matter of public record — any policy that moderates prices represents a direct financial threat.
"Including politicians" was Fraser's pointed addition, a reminder that those writing the rules are not always disinterested parties when it comes to protecting the value of the assets those rules happen to favour.
This creates a structural tension in democratic policy-making that goes well beyond simple personal self-interest. Governments of both persuasions have long struggled to explain to property-owning constituents why reform that benefits renters and first-home buyers is worth pursuing — particularly when those same property owners vote in consistently high numbers and follow housing policy with understandable vigilance.
The fiscal case accumulates
From a fiscal responsibility standpoint, Australia's current arrangements represent a substantial ongoing cost to the federal budget. Negative gearing and the capital gains tax discount together cost the Commonwealth tens of billions of dollars annually in forgone revenue. The question has never been whether this matters — it demonstrably does — but whether reform is politically achievable and whether the benefits would ultimately be distributed equitably across the population.
Treasury's assessment that a tax change would assist first-home buyers carries particular weight precisely because it comes not from an advocacy body or a think tank with a declared ideological position, but from the Commonwealth's own central economic analysis division — the department responsible for advising any government of any political colour on the consequences of its choices.
The counterarguments deserve a fair hearing
There are legitimate concerns on the other side of this ledger, and they should not be dismissed lightly. Property investors supply private rental accommodation to a market that successive governments have been unwilling or unable to fill through public provision. Remove the financial incentives and some investors will exit, potentially shrinking rental supply at a time when vacancy rates in Sydney, Melbourne, and Brisbane are already at historic lows. Research bodies that favour negative gearing reform have had to grapple seriously with this dynamic, even as their modelling generally supports the case for change.
The Coalition has historically opposed alterations to negative gearing, arguing the policy supports ordinary Australians building retirement security through property. It is a politically resonant argument, even if available data suggests the greatest benefits flow disproportionately to higher-income earners. Labor, meanwhile, remains conspicuously cautious — still stung by the electoral consequences of the housing tax platform it took to the 2019 federal election.
No single lever will suffice
The housing affordability crisis is not a simple problem with a single solution. Construction bottlenecks, restrictive zoning controlled by state governments, persistent labour shortages in the building trades, and sustained population growth have all contributed to prices that have outpaced wages for the better part of two decades. Tax reform alone will not resolve any of that structural reality.
But the accumulating evidence — now including the Commonwealth's own Treasury — suggests that the tax treatment of investment property remains a lever that successive federal governments have been reluctant to pull, for reasons that appear to have at least as much to do with political self-preservation as with coherent economic philosophy.
Reasonable Australians can disagree about the precise scope and timing of any reform. What is increasingly difficult to justify is the continued absence of an honest national conversation about what the evidence actually shows — and who benefits most from keeping that conversation quiet.
Originally reported by The Sydney Morning Herald.