Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
Mr BURNS (Macnamara) (09:12): The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 are significant. They mark the moment when this House will make a determination on the way in which our government collects revenue and the way in which we set up our tax system into the future for future generations.
The changes that we are discussing as part of these bills are some of the most important considerations that this House has made in my time here as a member of parliament, and I am proud to support these bills, which will set up our tax system and our revenue collection for future generations—to make it fairer, to make it more appropriate and to make sure that hardworking Australians are not left with the growing burden of our tax revenue.
The DEPUTY SPEAKER ( Ms Claydon ): Member for Macnamara, apologies. I'm going to interrupt you so that I can make clear the question that you're speaking to. I promise I will not swallow up your time.
The original question is that this bill be now read a second time. To this the honourable member for Hume moved as an amendment that all words after 'That' be omitted with a view to substituting other words and the honourable member for Curtin moved as an amendment to that amendment that all words after 'House' be omitted with a view to substituting other words.
So the question before the House is that the amendment moved by the honourable member for Curtin to the amendment moved by the honourable member for Hume be agreed to. I will enable the member for Macnamara to start his speech again, from the top. Mr BURNS: The millions watching at home will be grateful, Deputy Speaker!
Thank you very much. This is an important set of bills that will reform the way in which tax is collected in this country, to make it fairer and to make it better for future generations so that income does not continue to grow as the largest form of revenue in our budget, disproportionate to other forms of revenue. For people who are nurses, teachers, labourers or anyone who is working as part of the economy, the amount of tax they are paying versus the amount of tax that other forms of revenue for our budget is becoming disproportionately large.
When you add the fact that, when inflation is high, the Reserve Bank adds interest rate rises, the same people are being hit over and over again with higher income taxes as well as higher interest rates. When you look at the sorts of things that government needs to expend in the growing expenditure over the forward estimates—we're talking about things like health, we're talking about things like aged care, we're talking about things like defence—more and more of it is relying on hard-working Australians, people who are earning a wage and contributing to our amazing country.
These bills are the most significant reforms to taxation that I have been a part of in this place. They are an important set of reforms that will set up our country and the budget for future generations. It will focus primarily on four key things: it will restore the original intent of the capital gains tax concession, it will overhaul the negative gearing regime, it introduces a new $250 working Australian tax offset, and it creates a new $1,000 instant tax deduction.
We are a country that is heavily reliant on income tax. It accounts for roughly 48 per cent of revenue in this budget, and that is more than company tax and the GST combined. As a share of revenue, personal income tax continues to climb while all other sources are projected to plateau or fall.
The revenue, as I mentioned, of hard-working Australians, is what funds our world-class healthcare, our social security system and all of the other important work that our government funds, but it is just not tenable to continue taxing those hard-working Australians who are earning, via an income and earning via their work and via their labour, while also not addressing the income that people are receiving from assets in a similar way.
The biggest impact that the original capital gains discount has had has been on the housing market, so let's break down a few of the facts. In 1985, the Labor treasurer Paul Keating established the capital gains tax. The premise was simple: if you earn money through the sale of assets, you should pay tax, just as someone who earns money from their labour.
It's a pretty simple proposition. Why should a cleaner, a teacher or a nurse be taxed on their income at the marginal tax rate while someone who was an investor or owns an asset pays far less or no tax at all? Keating's system used something called cost-base indexation, which calculates your income by taking the total increase of value of your asset and subtracting the part that could be attributed to inflation.
In other words, you only pay tax on the income minus inflation. In 1999 the Liberal treasurer, Peter Costello, abolished the cost-base indexation and replaced it with a 50 per cent discount on capital gains. This had two major impacts.
The first one was on low-yield investments. On one hand, it actually disadvantaged investors in low-yield asset classes. The biggest one of them is apartments.
Over two decades from 2002 to 2022, the average apartment appreciated in value by around 4.5 per cent per annum. Over that same period, inflation averaged at 2.8 per cent per annum. That means, if you bought an apartment in 2002 and sold it 20 years later, you would be taxed on 50 per cent of the gain, despite inflation accounting for more than 60 per cent of that gain.
In other words, if you had an apartment, you'd be paying about 10 per cent of tax on income that you never really earned. Then there are high-yield investments. On the other hand, the 50 per cent concession created a huge incentive to invest in high-yield assets like houses with land.
Over the same period, from 2002 to 2022, house prices appreciated by over six per cent per annum, more than double the inflation rate, meaning investors could bank real gains but only pay tax on a portion of those gains. The result has been so dramatic and, in many cases, catastrophic in our housing market. In 1993, first home buyers accounted for a larger proportion of housing finance than investors by a margin of two per cent.
There were more first home buyers than investors in 1993. By 2018, investors were beating first home buyers by over 25 per cent. Between 1993 and 2018, investors started to dwarf first home buyers.
In the same period, homeownership among 25- to 34-year-old Australians fell from 61 per cent to just 43 per cent. We went from the majority of young, hardworking Australians seeking to get a mortgage being able to do so to less than half in just a couple of decades. The capital gains taxes in the budget are really simple.
As of 1 July 2027, the 50 per cent concession will once again be replaced with cost base indexation, but with one exemption. If you are willing to invest in the future of our country by building a new home, you can still choose to access the 50 per cent concession. There's no change to the tax treatment of the family home, which has always been exempt from the capital gains tax.
There's no change to the tax treatment of inheritance. The bill does something very simple. It focuses and fixes a system that has completely warped our housing system, which we can no longer leave to future generations to fix.
Make no mistake, any member who votes against this tax package will be saying very clearly to future generations that they are unwilling to turn around the homeownership rates in this country. Our income tax system is based on a pretty simple principle as well. When you spend money on work or to earn money, you should only pay tax on the difference.
That's why you can deduct travel, self-education, home office and other work related expenses from your taxable income each year. It makes pretty simple sense. The same applies to real estate.
If you've mortgaged an investment property and you're paying monthly interest costs, you can deduct these costs from the rent that you earn. That's also a sensible proposition. However, here's where it gets tricky.
Negative gearing is the idea that when monthly interest costs exceed rental earnings—meaning that you're making a loss overall—you can deduct that loss from other unrelated income. In other words, negative gearing has allowed investors to engage in unprofitable ventures they would otherwise not be able to afford simply because it reduces their tax bill. This also has a cumulative effect when combined with the CGT discount.
That has resulted in first home buyers not being able to compete with investors. This bill makes a pretty simple change. From 1 July 2027, you can no longer offset losses from rental properties purchased after budget day against other sources of income—again, with one exception.
If you're willing to build a new home and help us build more homes for our country, then you can still negatively gear. It has been argued that negative gearing is essential to maintaining Australia's rental market, and that abolishing negative gearing will force landlords to sell their houses and drastically diminish the rental market. But this simply does not stack up.
These changes aren't about getting rid of landlords. Every Australian who is currently negatively gearing will be able to continue to do so. As people pay off their mortgages and the costs of their homes, this will naturally tail off.
The expenses that we make each year as part of the budget will be reduced from our negative gearing and capital gains discounts for housing. I'm conscious that this House has a lot of other speakers that want to contribute to this debate, but let me say this. These decisions are not easy.
Not only are the taxes that we have in this bill important for the budget to be able to afford all of the things that we want to be able to do to support Australians who are working hard; it also goes back to that very simple principle. Each and every one of us has people in our electorates that work hard, that work multiple jobs, that are struggling to get by and that are working to support their kids, their family and their community.
They are forced to pay the marginal tax rate to live as part of our society. Yet there are other people who are able and who, perhaps because of the advantage of the way in which the economy was set up, were able to accumulate assets and are earning the same amount of money but paying far less tax. That's wrong.
While we absolutely need to work alongside businesses and small businesses, maintain the exemptions, listen to and consult and work with different sectors like the startup sector, my conscience is clear coming into this place. When we look at the data, when we look at the numbers, when we look at the fact that young people all around this country cannot afford to buy their own home—and when they talk about aspiration over there, they are not talking about the majority of young people who are currently locked out of the housing market.
Those people are aspirational as well. So it's time we designed a tax system and a tax regime that don't lock them out of the housing market—the single most important asset for most Australians to retire safely. This is a Labor reform, one that we need to get done for the future of our country and for the future of those aspirational young people that I'm proud to represent.