By Jack Arnold
There is media speculation and press leaks that the 2026 Federal Budget will include changes to both Negative Gearing (NG) and the Capital Gains Tax (CGT) to curb the massive inflow of investment capital into residential housing inflating the shortage of affordable housing in both metropolitan cities and regional centres.
The last attempt at NG and CGT reform by the Labor Shorten Reforms at the 2019 federal election was torpedoed by Coalition propaganda and media misinformation. However, since then the problem has been exacerbated by foreign private equity financial corporations taking an interest in the very profitable taxation advantages and capital gains provided by investing in Australian residential housing.
What is Negative Gearing?
In Australia, private natural persons who borrow to invest in property, both residential and commercial, may deduct all the related expenses incurred by the property from their personal assessable wages & salaries income.
So, an investor can deduct costs like property insurance, mortgage interest payments, property maintenance, legal and agent fees from the rental income and any such generated loss may be deducted from their total assessable income. Consequently, a landlord may manage his properties to reduce the tax bracket in which their personal income tax is assessed.
Further financial returns were received by the landlord when the Howard COALition government halved the CGT tax rates, thus further reducing taxation revenue.
For example, using simple figures; a landlord having a salary package of $200,000 may hold several properties that generate negative rental income so that their assessable income is reduced into a lower tax bracket creating savings.
In other countries rental income is assessed differently. Rachel Ong ViforJ reports that UK and New Zealand “ring fence” rental losses so that they are carried forward to offset against future rental income, BUT NOT against current personal income. The US limits rental losses as ‘’passive income’’ with tax deductions against personal income being limited to $25,000 maximum.
The key point of the Shorten reforms was that the new NG and CGT taxation specification would be “grandfathered in”; that is apply only to fresh investments settled after the legislation date. Consequently, the established benefits for landlords would continue unchanged until the rental property was sold. This key point was deliberately ignored or misrepresented by opponents to these equitable changes to taxation of rental income and/or political change.
Who benefits most from Negative Gearing?
In 2022-2023 tax period, Ong ViforJ reports about 37% of rental deductions went to about 500,000 landlords in the top 10% of personal income earners, while a further 34% was claimed by the top 30% of personal income earners. Moreover, 20% of top tax bracket earners reported rental losses compared to just 6% in lower tax brackets.
Why change?
There is an affordable residential housing crisis in Australia because governments of all persuasions have ignored the need to provide social housing. This has created a growing demand in the housing market, driving up prices thus excluding young persons and especially young families from the Menzies Liberal Dream of “owning your own home.”
The loan market is reported by Ong VitorJ as showing unfortunate changes in residential housing loans. Investors increased the percentage of home loans from about 25% in 2019 up to about 40% in December 2025, or $43 BILLION, while in the same period first home buyers declined from about 25% in 2019 down to 22% or $19.3 BILLION.
To date the successive government attempts to rectify this market trend have done nothing to reduce demand. Rather, all the “incentives” have merely inflated housing prices for the benefit of sellers and their agents.
How to return housing equity for first home buyers
Obviously the optimum solution is to grow the housing stocks by offering NG only to “new builds” while fresh purchases of all “used housing” would be exempt, thus creating a secondary, hopefully better value market allowing first home buying families to enter the housing market. Remember this would be “grandfathered in”, so established financial arrangements would be preserved.
Then CGT should be returned to pre-Howard levels rather than benefit high income earners to the detriment of taxation revenue.
Perhaps a future date could be proclaimed by which established residential investment property would lose their NG benefits, thus limiting the “grandfathering” to a future five (5) or ten (10) year period, to encourage orderly flow of properties for sale onto the market.
Another market dampening strategy could be to limit the number of “new build” properties and “used secondhand” properties that would be eligible for NG. Should this be implemented immediately or from a short term future date, then the landlords would be expected to determine the best options for their personal investments. Possibly there would be a “flood” of properties onto the present high demand market. However, allowing a longer period before cut-off would encourage an orderly dispersal on investment properties.
How will residential housing investors react?
The high personal income earners and landlords having small portfolios will likely seek professional advice from their accountants. The rapacious foreign venture capital corporations may be discouraged from the Australian residential market, for the benefit of first home buyers.
Jack Arnold is a retired academic polymath who commenced his professional career as a research scientist and ended as a lawyer, with too many decades of education between. To stay busy he has taken an active interest in all levels of local New England politics for the past 50 years, assisting in the election of three progressive candidates, the latter two being very busy Independent representatives for their communities.
Since the retirement of these politicians in 2013, New England has stagnated economically and socially with pre-selected Nationals being elected to Parliaments in the strange local belief that voting for 19th century ideals would yield the new government infrastructure projects that our kids will need to live in the electorates in this 21st century.
Regional Independents get things done for their communities.
What do Nationals, Liarbrals, ON do?? As little as possible for as long as they can.
Also by Jack:
Political Futures: Can the Influence of the Political Far Right be Tamed Across Regional Australia?
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They do this every year and if they don’t the opposition start a scare campaign when it comes to election time. They always back out, it’s never gonna happen. A gas tax would have been a two-birds-one-stone response to the incensed Australian public who are getting stressed about COL pressures and angrier and angrier with Labor, and the property investors who would immediately kick up a stink and start making threats. I mean who cares if energy corporations do their business here or not if we make no money from it; idle threats. Pack your things and get out then. Labor proved they care more about party coffers and their post-parliamentary careers as lobbyists than they do about tax payers whether that’s citizens/residents or corps. Merriam Webster, you need a new term for disappointing because that hardly cuts it with the current government’s litany of gross fails. A word that’s a meeting place between disappointment and fascism.
No mention about demand ?
The other price rise denominator.
Negative Gearing firstly requires a dud investment (i.e. property upkeep and other outgoings must exceed rental income) and second, another source of income which the property owner seeks to offset tax obligations against the losses on the property investment.
Capital Gains are income and all income is taxable, to give property investors a concession isn’t equitable and doesn’t make sense.
Discuss!
Terry, that always had me bemused too. I couldn’t see rent alone creating much of a deduction unless you were renting dirt cheap to a relative or friend. I’m not an expert nor have I negatively geared anything but the link lists:
You can also claim costs needed to keep your property in rentable condition, including:
Fixing plumbing or electrical issues
Pest control
Servicing essential equipment
General property upkeep
Professional Services and Depreciation
Additional deductions include:
Property management fees
Accounting and tax preparation costs
Legal expenses related to property management
Depreciation on the building and fixtures
Depreciation is particularly valuable. Even though it’s a non-cash deduction, it can significantly reduce taxable income.
So, yes perhaps these investors buy dives and then repair; perhaps the legal administration amounts. However, and don’t ask me how it works but the one I would imagine is the big spinner is “Depreciation is particularly valuable. Even though it’s a non-cash deduction, it can significantly reduce taxable income.”
How reforming Negative Gearing and CGT may impact the Australian housing market: The New Zealand Experience
https://theconversation.com/mum-and-dad-investors-are-pulling-back-what-will-that-mean-for-nzs-housing-market-281427?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20April%2029%202026%20-%203752838431&utm_content=Latest%20from%20The%20Conversation%20for%20April%2029%202026%20-%203752838431+CID_072de153af14c3d82a24427f8361e05b&utm_source=campaign_monitor&utm_term=Mum%20and%20dad%20investors%20are%20pulling%20back%20What%20will%20that%20mean%20for%20NZs%20housing%20market