CBA proposes $18 bn estate tax benefits ‘most likely’ to be cut

Australia’s biggest bank CBA says $18 billion of tax benefits for property investors – from CGT discounts to negative gearing – are now ‘likely’ to be cut.

Analysis of Treasury estimates has the government currently talking about a lost tax benefit worth 15-18 billion dollars by allowing individuals and trusts to use these discounts and deductions on their property sales and lettings – with CGT making up the bulk of the 13 billion dollars. It is believed that these figures may have higher home price gains since the beginning of the epidemic.

Commonwealth Bank chief economist Mr Yeaman said “housing will bear the cost of strong growth”.

Mr Yeaman, who has been deputy secretary of the federal Treasury and head of the government’s macroeconomics team throughout the pandemic, branded the moves a “potential step” by policymakers seeking to reform the government’s open tax breaks.

RELATED: Albo’s gamble: Unions behind estate tax reform:

Luke Yeaman is the CBA’s chief economist now and was the union’s deputy secretary of the Treasury during the violence.

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“With increased focus on prices, public spending at historically high levels as a share of GDP and productivity slowed to a slower pace, pressure will mount on major economic reforms and deep cuts in government spending,” he said.

“We’re still expecting to see some major new measures in May’s Budget, but the final decisions won’t be made until Budget night. In our view, the most likely move is the withdrawal of the 50 per cent Capital Gains Tax (CGT) discount on housing and/or a reduction in negative gearing.”

For property investors, the CGT rebate reduces the tax on profits from the sale of rental properties by 50 per cent, while negative gearing reduces the annual tax on any property losses. Cutting or eliminating these benefits will return billions of dollars to the state budget – but more importantly from the CGT reform.

According to the Grattan Institute sent to the Select Committee of the Senate in December of last year – by Brendan Coates, Joey Moloney and Aruna Sathanapally – “the 50 percent CGT discount for individuals and trusts should be reduced to 25 percent, in a gradual phase over five years (rather than grandfathering)” – which means that the release of assets now will not mean that investments will not be released.

“This would better balance competitive objectives, and raise approximately $6.5 billion annually for the federal budget,” their submission said.

Reducing capital gains tax concessions for investors who benefit from rising housing prices is “a potential option on the table for policymakers.

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Mr Yeaman said that various corporate tax reforms have also been implemented but “there is little agreement on a solution” and some are facing major challenges in their implementation.

“When it comes to corporate tax reform, expect a long process of design and consultation, not a quick move. Other ways the government can save will be considered, but given the huge pressures on spending on health, disability and defence, overall spending levels are unlikely to change much,” he said.

The CBA this week updated its housing outlook, now expecting prices to rise 5 percent in 2026, down from 8 percent in 2025, as higher interest rates and potential tax changes cool.

The CBA now expects at least one RBA rate hike in May, meaning borrowers could face two hikes so far in 2026.

“As explained by Belinda Allen, we now expect the RBA to deliver one more rate hike of 25 bp in May, to take out more heat and ensure inflation is back on target,” Mr Yeaman said.

“Every rose has its thorns … this time the rose is growing stronger, and the thorn is growing more in money and interest rates,” he added.

Rising household incomes have fueled demand, increasing the impact on borrowers: “Consumer demand has strengthened after a sharp rise in household incomes, supporting spending despite high interest rates,” said Mr Yeaman.

Each 25 bp increase adds about $5 billion to mortgage payments, meaning the two increases expected this year will hit households by about $10 billion combined.

The CBA says the economy has moved into a “high road,” where demand is outstripping supply: “Consumers continue to build confidence, public spending remains strong and private business investment is starting to pick up and demand is starting to outstrip supply, putting upward pressure on inflation,” Mr Yeaman said.

“The most important thing is that inflation has increased interest rates again,” he said, which is what led the Bank to raise interest rates in February.

For households, the CBA’s message is clear: the economy may be stagnant, but housing is increasingly paying the price.