Australia’s Tax Debate Keeps Returning to CGT. But Are We Asking the Wrong Questions?
Every few years the idea of reducing the 50% capital gains tax (CGT) discount returns to the national conversation.
With the May 2026 Federal Budget approaching, it appears the idea is again being discussed — particularly in relation to investment property.
This isn’t the first time.
And it probably won’t be the last.
But focusing purely on the CGT discount risks missing a much bigger issue.
Australia doesn’t just need tweaks to individual taxes. It may need broader tax reform.
Housing affordability is fundamentally a supply problem
Housing affordability is one of the biggest economic challenges facing Australia.
Younger Australians are finding it harder to enter the property market and housing stress continues to rise.
But changing the CGT discount alone is unlikely to fix that.
Australia’s problem is fundamentally a supply problem.
Current estimates suggest the country faces a housing shortfall of roughly 200,000–300,000 homes, and the national housing target requires building around 240,000 homes per year to keep pace with demand.
In reality, we’re building far fewer.
Development approvals can take months — sometimes years — with planning approvals in some jurisdictions averaging 140 days or more, and significantly longer when objections arise.
At the same time, population growth has continued to increase demand.
Without addressing these structural issues, tax changes may simply increase government revenue without improving affordability.
Stamp duty discourages people from moving
One tax that arguably distorts the housing market more than most is stamp duty.
Stamp duty creates a large upfront cost every time someone moves house.
The result?
People often stay in homes that no longer suit their needs because moving becomes financially painful.
This creates inefficiencies across the housing market:
Older Australians stay in large family homes rather than downsizing
Growing families struggle to upgrade
Housing stock is not used efficiently
Encouraging people to right-size their homes could free up supply without building a single new property.
We need more tradespeople building homes
Even when projects are approved, construction capacity can limit how quickly homes are built.
Australia faces ongoing shortages in key construction trades.
Encouraging more young Australians to enter trades through apprenticeship incentives and training support could help address one of the real bottlenecks in housing supply.
Tax policy should encourage productive investment
Tax policy also plays an important role in shaping business investment.
In recent years governments have introduced temporary incentives such as instant asset write-offs or accelerated depreciation.
These measures can be helpful, but businesses benefit most from certainty and consistency.
Permanent incentives encouraging investment in equipment, technology and innovation could have a much stronger impact on productivity than short-term stimulus measures.
Payroll tax quietly discourages employment
Payroll tax is another part of the system worth examining.
For labour-intensive businesses, payroll tax becomes a significant on-cost once the threshold is exceeded.
The rules and thresholds also vary across states, creating additional complexity for national employers.
In practice this can push businesses toward decisions they might not otherwise make:
outsourcing work
offshoring roles
replacing people with technology
Not because it’s strategically better — but because the tax system makes local employment more expensive.
The system can produce uneven outcomes
As an adviser working with businesses every day, I also see examples where the system produces uneven outcomes.
Consider two entrepreneurs earning the same income from a business.
One operates through a discretionary trust and distributes income across a spouse and three adult children.
Another runs the same business as a sole trader with no family members involved.
The first can legitimately reduce the family’s overall tax bill by sharing their income across multiple taxpayers — even if those family members are not actively involved in the business.
The second pays tax at the highest marginal rates.
Both people built the same business and generated the same income.
Yet the tax outcomes can be dramatically different.
Over time, rules designed to manage these structures have become increasingly complex, adding compliance costs and uncertainty.
Tax thresholds quietly erode over time
Another structural issue is that many thresholds in Australia’s tax system do not automatically move with inflation.
Over time this erodes their real value.
This affects:
personal income tax brackets
payroll tax thresholds
grant and concession limits
FBT exemption caps for Public Benevolent Institutions
The FBT exemption cap for PBIs, for example, has not kept pace with inflation since it was introduced, meaning its real value has steadily declined.
The same concept applies to personal tax brackets.
When thresholds are not indexed to CPI, governments collect more tax each year without changing legislation.
Economists call this bracket creep.
But for taxpayers it simply feels like paying more tax every year.
Australia recently recorded one of the largest increases in average income tax rates in the OECD, largely due to bracket creep.
Could the system be simpler?
This is where the conversation becomes more controversial.
But perhaps we should at least ask the question.
What if Australia had a much simpler personal tax system?
For example:
one tax rate for income below the average wage (around $70,000)
another rate for income above that level
A flatter system could reduce complexity and make the tax system easier to understand.
Some parts of the system work well
Not every part of the tax system needs changing.
Australia’s dividend imputation system, including franking credits, prevents company profits from being taxed twice.
Removing it would reintroduce double taxation of company earnings and discourage investment in Australian businesses.
Should GST be part of the conversation?
Australia’s GST rate of 10% is relatively low compared with many developed economies, where VAT rates often sit between 15% and 25%.
Increasing GST while reducing other taxes is politically difficult, but it could shift the system more toward consumption rather than income.
High-income earners, who typically spend more, would still contribute significantly through consumption.
Imagine if businesses spent less time avoiding tax
A complicated tax system has unintended consequences.
Businesses spend significant time and money navigating tax structures, compliance obligations and planning strategies.
Imagine if more of that effort went into:
innovation
investment
productivity
higher dividends for shareholders
In a way, advocating for tax simplification might even challenge my own profession.
But a system that is simpler, clearer and more stable would benefit the broader economy.
We need to think differently
Reducing the CGT discount might generate headlines.
But it won’t solve Australia’s structural economic challenges.
If we want to improve housing affordability, productivity and economic growth, we need to ask bigger questions about the tax system.
Are we taxing work too heavily?
Are we discouraging employment?
Are we encouraging the right types of investment?
And is the system becoming unnecessarily complex?
I’ll be the first to admit that economics wasn’t my strongest subject at university, so some of these ideas may have unintended consequences.
But the conversation matters.
Because tax policy shapes the decisions Australians make every day — whether to invest, hire, build or innovate.
If we want different outcomes, we may need to start thinking differently.
