Some economists suggest that the introduction of the capital gains tax discount was just a coincidence and had nothing at all to do with the divergence of house prices and household incomes.
No one is silly enough to suggest that removing the capital gains discount will solve everything, and certainly we do need greater density, and more housing in general – and especially more public housing.
But the thing about that capital gains discount is that not only has it verifiably distorted the housing market by making negative gearing a very attractive proposition – the benefits overwhelmingly go to the richest.
This is because the very richest, unlike most of us, don’t get a lot of their money from salary or wages. People who have incomes over $1m make up only around 0.2% of all taxpayers, and they earn 1.3% of all salaries and wages earned, but 41% of all capital gains earned.
And consider as well that those capital gains come with a 50% tax discount.
And the cost of that discount is rather sizeable.
The Treasury estimates that in 2023-24 about $19bn in tax revenue was forgone due to the discount. And 80% of it went to the richest 10% – a sweet $15.6bn: