In the May 2026 Federal Budget, the Government brought in changes to Property Negative Gearing and Capital Gains Tax on all assets.
Their reasoning for this was to try and help improve affordability of housing and help first home buyers into the market.
One sad and simple fact is that to meet the demand pressure we need to build more houses, but importantly we need to build affordable houses!
To quote Prime Minister Albanese, “we have tried everything else” so they feel that changes to CGT & Negative Gearing was their last hope.
It is not!
The one indisputable fact about the current housing market, is that it is a lack of supply that is the driver of price uplifts, so changes to taxation policy are unlikely to change this and indeed may only worsen the current issue.
I commend the decision to leave negative gearing on new construction for investors, as this is a measure that encourages the supply side.
What I am suggesting is taking the most simplest of options, one that has not been properly considered and one that will have an immediate and lasting impact on home affordability without causing confusion or disruption to the property or rental markets.
This simple option, which can be easily done through a change in the GST scales to move Residential Construction to a GST Free activity, will serve to immediately reduce the cost of building a home by 10% (the current additional GST cost) and the cost of a new apartment by approximately 6-7% (the approximate cost of GST when using the current Margin Scheme method).
Both of these would serve well to reduce the costs, absorb the price rises or allow developers margins to improve for either buyer incentive or higher profitability to protect the industry and increase the level of new apartment activity.
The cost of doing this to the Federal Budget is NIL, as GST is collected by the Federal Government and passed on to the State Governments.
The latest New Building numbers from the ABS suggest that A$81.7bn in new residential building in the financial year to 30th June 2025. Assuming this is inclusive of GST, then that would equate to a maximum of A$7.4bn of GST Collections (without allowing for Margin Scheme adjustments or offsets).
It is also fair to say that GST is unfairly included in the cost of construction since it was specifically excluded from sales of established property.
Furthermore, the escalation of the cost to build (including the GST component) has increased much higher than would have been anticipated as can be seen in the below table, so the impost of between A$35,450 to A$58,641 is far too excessive and unjustifiable in a time when we need to encourage construction and make every effort to allow new build residential to be as affordable as possible.
| FY2001 1 | GST 10% | FY2025 2 | GST 10% | |
|---|---|---|---|---|
| NSW | $162,200 | $14,745 | $558,326 | $50,757 |
| VIC | $149,300 | $13,573 | $589,080 | $53,553 |
| QLD | $139,700 | $12,700 | $500,160 | $45,469 |
| SA | $119,000 | $10,818 | $389,949 | $35,450 |
| WA | $132,100 | $12,009 | $400,000 | $36,364 |
| TAS | $117,600 | $10,691 | $480,000 | $43,636 |
| NT | $154,700 | $14,064 | ||
| ACT | $153,200 | $13,927 | $645,052 | $58,641 |
| Value of Work 3 | $81,736,600,000 | $7,430,600,000 |
Source: 1. ABS – Building Approvals, Australia, Mar 2002. 2. Openlot 2025 National ABS Housing Data Report. 3. ABS – Building Activity Dec 2025.
I am sure that all Governments and political parties can be on full consensus that removing GST on new residential construction is not only prudent, but essential in the fight to create more housing stock at an affordable cost.
In addition, the simple removal of GST from residential construction would allow the Government to defer any changes proposed to Capital Gains Tax or Negative Gearing so they can properly assess the impact of lower cost construction before making other changes that are unpopular and alarming to the community.
The Treasurer Dr Jim Chalmers went to great lengths in his Budget speech to remind the country of the many global challenges being faced. The proposed changes to CGT & Negative gearing have created more concern, worry and anxiety and may well prove to have little impact on the housing or rental crisis, and worse case could make the problem bigger if less landlords come into the market due to misunderstanding of the intentions of the Governments policy.
Furthermore, one should note that moving from discount to indexation on CGT is not that great a benefit or cost at the moment as inflation is currently on the high side so if general asset growth moderates then the inflation free element may indeed be equal to or greater than the current 50% tax free discount.
Changes to CGT & Negative Gearing would be best considered in a market where there was an oversupply of new builds and high vacancy rates in the rental market. That is not where we are currently finding ourselves.
Any Government should be encouraging increased property supply to meet the demands of a growing population (both naturally and through immigration), so this proposal benefits the entire nation without creating confusion concern or discontent.
We commend the Government to have the political intelligence and the courage to listen to the logic of removing GST from Residential Construction while maintaining the positive outlook for this great country to provide opportunity of home ownership and wealth creation for the benefit of the entire nation.
We submit these facts and options in the genuine hope that this change can bring about a significant positive contribution to the inter-generational wealth divide and maintain the level of fairness, prosperity and opportunity for all.
Watch our recent Budget Review Seminar where we discuss in more detail: