This paper calls for a major shake up of capital gains tax (CGT) via a 'circuit breaker' proposal to the stalled national housing debate. Instead of simply increasing or decreasing the CGT discount, the paper takes a more nuanced approach. The reform is calibrated to benefit first home buyers, renters, first-time investors and taxpayers.

Key points

• Australian governments are not on track to meet their stated objective of 1.2 million additional homes constructed by 2030.
• Current housing tax incentives are unproductive: they orient too much investment towards established dwellings.
• Changes to negative gearing should be ruled out in favour of sensible reforms to the CGT discount.
• The commonly held desire by ‘mum and dad’ investors to secure their future by investing in the housing market should be harnessed.

Recommendations

1. Increase the CGT discount on new attached builds to 70%, from 50%.
2. Decrease the CGT discount on existing detached dwellings to 35%, from 50%.
3. Leave the CGT discount on new detached dwellings unchanged at 50%.

The paper estimates this reform option would generate a 1.2% 'uplift' on supply, helping Australia get back on track to its target of 1.2 million homes by 2030. It could see up to 130,000 additional homes built by 2030.