Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026
Dr SCAMPS (Mackellar) (20:48): The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 represent one of the most significant changes to Australia's tax system in a generation. It seeks to reshape how we tax housing, wealth and investment. In doing so, it will have a profound implication for housing affordability, economic productivity, investment decisions and intergenerational fairness.
That is precisely why this parliament must approach it with both ambition and caution. There is much in these bills that reflects a legitimate attempt to address longstanding distortions and failings in our tax system, particularly housing taxation, and I commend the government for having the courage to tackle the challenge of tax reform head on when so many other governments over the last 25 years have not.
As Ken Henry said, recent governments have committed 'wilful acts of bastardry' in failing to act on rapidly growing intergenerational inequality in Australia driven largely by housing tax settings that have increasingly locked young people out of the housing market. However, there is also justified concern and anger being expressed by Australians across the country, including in my electorate of Mackellar, about elements of this bill, such as the 30 per cent minimum capital gains tax on all asset classes.
People have been blindsided by the decision to expand the changes to capital gains taxation far beyond housing and to apply it to all classes of assets, including shares, startups, businesses and exchange traded funds, rather than focusing it specifically on housing related concessions that were expected and generally accepted as needed. For many younger Australians who are trying to save up to buy their own home, investment in assets such as shares and exchange traded funds have become preferred pathways to build modest wealth and get a leg up towards financial security.
Many view these changes to the capital gains tax across all assets as pulling the ladder up after ourselves. There is also frustration that the changes to the taxation of asset wealth have not been accompanied by meaningful reductions in personal income tax. The $250 Working Australians Tax Offset will largely be swallowed up by inflation by the time July 2028 comes around.
As a nation, we are overly reliant on personal income tax to raise revenue. And in a world where cost of living is rising rapidly, people are not only struggling to get ahead but struggling to keep afloat. Again, former Treasury secretary Dr Ken Henry has long argued that reforming the taxation of assets should be paired with lower taxes on work and wages.
In addition, whilst people have been blindsided by some of what has been included in this budget tax package, there has also been a glaring omission from this package, and that is properly taxing the export of our gas and other resources. The reforms in this bill are simply too important to be rushed. The decisions we make now will shape investment, productivity, housing affordability and economic opportunity for decades to come.
These decisions will go to the heart of the type of society we become and whether we are a fair and prosperous society that values endeavour, innovation and risk-taking. Reforms of this magnitude deserve proper scrutiny, broad consultation and careful consideration to iron out any unintended consequences. That is why I join many of my crossbench colleagues in urging the government to slow down this process.
A comprehensive parliamentary inquiry would allow experts, stakeholders and the public to properly engage with the proposals, test the assumptions underpinning them and identify any unintended consequences before the changes are locked in. Before I move to the specific measures contained in this bill I want to address the broader problems within Australia's tax system that these reforms are intended to address.
As I have said, I commend the government for taking the politically difficult step of reforming capital gains tax and negative gearing for housing to make access fairer for first home buyers and key workers. The tax settings put in place by the Howard government in 1999, over 25 years ago, have seen house prices rise at twice the rate of income nationally, and in some major cities the growth has been up to three times the rate of wages growth.
Indeed, as I communicated directly to the Treasurer in the lead-up to the budget, many people across Mackellar have been calling for meaningful housing tax reform for some time now. Mackellar is a community where many have benefited from Australia's existing housing and tax settings. Yet I've consistently heard—through my Mackellar People's Jury on housing, community consultations, surveys and conversations with residents—a strong concern about intergenerational fairness.
Parents and grandparents told me they are worried that their children and grandchildren will not enjoy the same opportunities they had. Young people and essential workers told me that homeownership feels increasingly out of reach. Despite working hard and doing all the right things, they are constantly chasing the deposit gap and being outbid at auctions.
But it is the other elements in this bill that have attracted pushback and consternation. I want to turn now to these specific elements. Schedule 1 of the bill replaces the 50 per cent capital gains tax discount for individuals' trusts and partnerships with a system of inflation based indexation and a minimum 30 per cent tax rate on capital gains on all classes of assets accruing from July 2027.
This is by far the most contentious aspect of the legislation. As I've already noted, there is broad recognition that Australia's housing related tax settings require reform. However, there is considerably less consensus around extending these reforms beyond housing and applying them across all classes of assets.
I've heard significant concerns from community members, small-business owners, investors, entrepreneurs and founders who fear they may be caught by the changes that were primarily designed to address housing affordability. Many have argued that the indexation method of determining the capital gains tax concession, together with the minimum 30 per cent CGT, risks reducing incentives for investment in highly productive parts of the economy, including start-ups, the tech sector and growing businesses.
It's important to acknowledge that the government recognised these risks prior to the budget and has been consulting with the sector on solutions, but those solutions are not included here in this bill. It must also be recognised that access to all four of the small business capital gains tax concessions have been retained, which is positive. Businesses with an aggregated turnover below $2 million or net assets below $6 million will continue to benefit from these substantial concessions despite the changes.
However, many have pointed out that these small- business thresholds have not been increased in nearly two decades so have not kept pace with inflation, the rising cost of doing business and the realities of operating a modern business. As a result, a significant number of businesses that would reasonably be considered small- or medium-sized enterprises fall outside the scope of these protections, and this must be addressed.
As the Council of Small Business Organisations Australia advocates, these thresholds must be raised. There also remains unresolved questions about the practical operation of the proposed cost-base indexation system. While the intention is to tax only real gains rather than inflationary gains, concern has been raised about increased complexity, the creation of so-called phantom losses in some circumstances and the potential impact on long-term investment decisions.
Many from the investment and start-up community argue that the capital gains tax indexation method can bias capital towards lower risk assets by dampening the incentives for higher risk, higher return investments. Added to this, there are serious concerns across the tech sector that the government's proposed CGT method could significantly increase taxes for successful founders, creating a disincentive to start, grow and operate businesses in Australia.
Government is consulting with these industries, and it is critical that a workable solution is found to ensure entrepreneurial risk is properly rewarded and encouraged. These are substantive concerns that deserve careful examination and comparison with other methods of capital gains tax concession determination, such as reducing it from the current 50 per cent to maybe 40 per cent or 30 per cent.
This would be far simpler and avoid some of the unintended consequences of the inflation adjusted method. Schedule 2 limits negative gearing for residential property investments to newly constructed homes from 1 July 2027. This measure is broadly welcomed from a fairness perspective, and it is one that I have advocated for.
However, it could be that negative gearing is retained for at least one property to allow rentvesting to continue, a vehicle that many young people are using to try and get a foot in the door of the housing market. Alongside reform to the capital gains tax discount, this addresses a longstanding distortion in our housing market. Together, these tax settings have encouraged investment in existing homes, have contributed to investors competing directly with owner-occupiers and first home buyers and have driven up housing prices such that Sydney, for example, is now the second most expensive city in the world in which to rent or buy.
Under the proposed changes, losses from established residential properties will no longer be deductible against income from wages and salaries. Instead, they may only be offset against rental income or capital gains from residential property investments, with unused losses able to be carried forward. There is also a sensible exemption for eligible new builds.
By retaining negative gearing for newly constructed homes, the bill seeks to direct investment towards increasing housing supply rather than inflating the price of existing housing stock. Finally, I turn to schedules 3 and 4. These schedules contain measures that are broadly welcomed but relatively minor in nature.
They've been strategically bundled into this package alongside much larger and more contentious reforms in an effort to wedge members of the parliament. Schedule 3 introduces the working Australians tax offset, a non-refundable tax offset for Australians who earn labour income. Whilst this measure is welcome, it will not do much to address the challenges facing Australian households.
At a maximum of $250 a year, it amounts to less than $5 a week. That is unlikely to make a meaningful difference to cost-of-living pressures. And it certainly does not offset the larger structural changes contained elsewhere in this bill that may affect investment and growth.
It is a highly targeted tax cut that adds further complexity to the tax system and excludes many Australians who are struggling the most, including welfare recipients, retirees and unemployed Australians, who do not earn the labour income required to qualify. We must reduce the income tax burden on working Australians, and, while the WATO is not the most effective, impactful or equitable way to do this, I welcome the working Australians tax offset as a modest measure.
Schedule 4 introduces a $1,000 standard deduction for work related expenses for individuals. Similarly, this is a welcome but relatively minor measure. It will simplify tax returns for many Australians and reduce the compliance burden associated with claiming small work related expenses.
However, its practical impact should not be overstated. While any tax relief is welcome, this measure will go nowhere near offsetting some of the potential impacts of the more significant reforms contained elsewhere in this bill. I support the changes to housing tax settings in this bill because they reflect a growing social licence for reform in this area and a recognition that the status quo is not delivering fair outcomes for our children, grandchildren or future generations.
But, if we are going to undertake major tax reform—and I believe we should—then we must take the time to get it right and ensure we do not damage the engine room of the Australian economy: small businesses, startups and entrepreneurs, who drive innovation and growth. We cannot afford to drive them overseas to countries that have more favourable tax settings. For that reason, this bill deserves far more scrutiny and careful consideration than it has so far received given the long-term consequences for the Australian economy and for future generations.