The federal government is facing pushback from Gen Z and millennial investors following a budget that aims to tackle intergenerational inequality through significant tax reforms. While Prime Minister Anthony Albanese maintains the budget is designed to create a fairer system, younger Australians are expressing concerns that their primary pathways to wealth are being restricted.
Changes to Capital Gains and Negative Gearing
Tuesday’s federal budget introduced a plan to scrap negative gearing for all properties except new homes and to reduce the Capital Gains Tax (CGT) discount. Existing assets will be grandfathered under the new rules.
Critics of the move argue that targeting the CGT—which applies to investments such as crypto and new shares—limits the few wealth-growth avenues available to young people. Shadow Treasurer Tim Wilson described the changes as “knee-capping” self-starters, stating that the government is ignoring the record rates at which young Australians are purchasing ETFs, shares, and crypto.
Treasurer Jim Chalmers defended the decision, arguing that shares have been “under compensated” for two decades. He told Insiders that removing this “distortion” creates a “fairer more neutral treatment of investment” by encouraging people to invest based on economic outcomes rather than tax advantages.
The Impact on Rentvesting
The government has clarified that negative gearing will remain available for those who purchase newly built homes. Prime Minister Anthony Albanese stated that this approach encourages young people to help boost the national housing supply while building personal wealth.
However, some experts have warned that rentvestors who purchase new homes could be disadvantaged, as the house value may depreciate faster than the land value increases.
Mr. Chalmers noted that rentvestors make up a small portion of the youth population, stating that well under 5 per cent of people under 35 have rental income, a figure that includes both owner-occupiers and those who are positively or negatively geared.
Political Clash Over Tax Offsets
To mitigate the impact of these changes, the government introduced the Working Australians Tax Offset (WATO). This $250 tax break is expected to benefit an estimated 13 million workers annually starting in July 2028, costing $6.4 billion in its first two years.
Opposition Leader Angus Taylor has pledged to scrap these tax changes and instead proposes indexing income tax brackets to inflation. This plan could save the typical taxpayer $250 in the first year and approximately $1,000 annually by the fourth year.
Mr. Chalmers labeled the Opposition’s indexation scheme “irresponsible,” claiming it could add a quarter of a trillion dollars to the national debt over a decade. Conversely, Mr. Taylor argued the WATO is a “smokescreen” for future income tax hikes, noting his plan’s costings over six years are about $22 billion.
What May Happen Next
The future of these tax reforms may depend on the next election, as the Coalition has promised to reverse Labor’s reforms if they are elected. Depending on the outcome, Australians may see a return to previous CGT and negative gearing settings or a shift toward the Opposition’s proposed inflation-indexed tax brackets.
Frequently Asked Questions
Will existing investment properties be affected by the negative gearing scrap?
No, the government has included a caveat to grandfather existing assets.
How does the Working Australians Tax Offset (WATO) work?
The WATO is an ongoing $250 tax break that will flow to an estimated 13 million workers every year starting from July 2028.
What is the government’s reason for limiting negative gearing to new builds?
Prime Minister Anthony Albanese stated that this change encourages young people to boost the national housing supply while building their own wealth.
Do you believe tax incentives should prioritize national housing supply or individual investment growth?
