CGT changes: Greens hint they want to scrap grandfathering in Labor’s Budget tax changes

The Greens have given several more hints they want to scrap grandfathering provisions in Labor’s negative gearing and capital gains tax changes for its Budget legislation to pass the Senate.

Senator Nick McKim, the Greens treasury spokesman, used a Senate economics hearing in Canberra on Monday to ask economists a series of questions in favour of making the proposed tax changes retrospective rather than having them grandfathered for homes exchanged before Budget night, ahead of a July 2027 start date.

“Obviously, the Government’s chosen to grandfather current negative gearing benefits,” Senator McKim said.

“Can you just reflect on that, please, with a particular focus on intergenerational equity?”

Senator McKim also argued that scrapping grandfathering would see more investors sell their homes.

“There are about 1.7 million properties owned by people with two or more investment properties,” he said.

“If they weren’t grandfathered into existing negative gearing arrangements, do you think we’d see a stronger reallocation of housing from investors to owner-occupiers?”

Matt Grudnoff, a senior economist with the left-wing Australia Institute think tank, agreed.

“If you want an impact earlier on, then the more restrictive the grandfathering arrangements are, the bigger the impact will be on house prices,” he said.

“There are people out that that own hundreds of properties: house prices go up and they’re borrowing against the equity to buy more and they’re massively negatively geared.

“If you removed that, they would have to unwind that and the only way they could unwind that is by selling off a lot of properties quickly.

“If you’re selling off a lot of properties into a market, more supply, lower price, those properties are going to be bought by first-home buyers.”

Independent economist Saul Eslake said he was opposed to grandfathering but accepted Labor needed to do that for political purposes.

“I don’t like grandfathering, because it almost by definition privileges people on the basis of birth order,” he said.

“If the judgement of those that have to get elected have made that grandfathering is necessary to gain public support for or legislative acceptance of the proposals they’re putting, then I’m prepared to live with it.”

Senator McKim also cited Professor Robert Breunig, the director of the Australian National University’s Tax and Transfer Policy Institute, to argue grandfathering “would lock in intergenerational unfairness”.

Dr Peter Varela, a research fellow at the Tax and Transfer Policy Institute, agreed with Senator McKim’s suggestion the changes were unfair.

“One of the big concerns with capital gains and grandfathering is the sort of ... you get really strong lock-in effects,” he said.

Mark Zirnsak, a co-founder of the Tax Justice Network, said the Federal Government’s grandfathering plan would minimise the tax burden on those who had bought assets in the mid-1980s, when the capital gains tax debuted.

“One of the areas where it is probably most unfair is the pre-capital gains tax assets that were grandfathered and they now effectively get 40 years’ worth of tax-free benefit,” he said.

Senator McKim also hinted the Greens would seek an amendment to a ministerial discretion clause in Labor’s legislation so Treasurer Jim Chalmers, or a successor, would not have a proposed power to decide how the capital gains tax was applied.

“The legislation contains provisions for the Treasurer, which in my view are very broad powers, where this treasurer or any future treasurer could reapply the 50 per cent capital gains tax discount and unrestricted negative gearing on any asset class that he or she might want to apply it to, including existing properties,” he said.

Labor wants to restrict negative gearing to brand new homes from July 2027 but grandfather the tax breaks for property investors making a rental loss on an existing home bought before Budget night.

This would occur as the 50 per cent capital gains tax discount was also grandfathered before capital gains from mid next year were subjected to a minimum 30 per cent tax on inflation-adjusted value increases.

The capital gains tax that existed from September 1985 to September 1999, before the 50 per cent CGT concession, was based on inflation-adjusted gains without a 30 per cent tax, and allowed income averaging over five years.

The Senate economics committee is tabling its report into the Treasury Laws Amendment (Tax Reform No.1) Bill 20-2026 on June 22, when the Senate sits again, following two days of public hearing this week.

The Federal Government needs the support of the Greens in the Senate to get its legislation passed, with the Coalition opposed to Labor’s negative gearing and capital gains tax changes.

Senator McKim in March declared the Greens were opposed to grandfathering negative gearing and capital gains tax concessions, following a Senate inquiry into the CGT discount.

But during last year’s election, the Greens had advocated grandfathering the CGT discount and negative gearing to one investment property “ensuring ‘mum and dad’ investors with a single investment property are not negatively impacted, while disincentivising future speculative and unproductive investment in the property market”.