Following the release of Australia’s latest federal budget, a package of changes to property investment and capital gains rules has attracted the most attention.
From 1 July 2027, Australia will make major changes to capital gains tax (CGT) and property investment tax rules. The existing 50% CGT discount for long-held assets will be replaced by inflation indexation, while future capital gains will face a tax rate of at least 30%.
Meanwhile, the controversial negative gearing policy is also being tightened: in future, only investments in new homes will continue to qualify for this tax treatment, while investors buying existing homes will gradually lose the associated tax advantages.
The message from this policy package is clear: the government wants capital to move from buying existing homes to building new ones.
But this raises a question: will these changes increase housing supply, or alter investors’ willingness to invest?
New Zealand’s capital gains tax debate has never truly gone away
Commentator Marcus Ganley, who has helped prepare several Australian federal budgets, noted in his analysis that this budget brings two topics familiar to New Zealand back into focus: negative gearing and capital gains tax.
In his view, the core of Australia’s policy is to reshape investment incentives through the tax system, encouraging investors to support additional housing supply rather than compete for existing homes.
Supporters believe the reform will help improve the balance of competition between first-home buyers and investors. Opponents, however, worry that it could reduce investment, squeeze rental supply and push up rents.
Of greater significance for New Zealand are the changes to capital gains tax itself.
New Zealand’s current capital gains tax debate focuses mainly on investment properties. Australia’s changes, however, extend to a broader range of assets, including shares and venture capital investments. This raises a deeper question: could a tax initially defined as limited in scope keep expanding?
The wider controversy extends beyond property. There are concerns in the market that these tax changes could discourage investment in productive assets such as start-ups and the sharemarket, affecting the dynamism of the wider economy. This adds a productivity dimension to discussion of the budget beyond housing policy.
Political concerns have already emerged
This point was quickly amplified by New Zealand Finance Minister and National Party finance spokesperson Nicola Willis.
In her response, she said Australia’s example showed that, once introduced, a capital gains tax often extends beyond its originally promised scope. She criticised Labour’s shifting position on tax and warned that New Zealand could follow a similar path.
These remarks clearly carry an electoral message, but they also highlight the most sensitive aspect of the current debate: the public is concerned not only about what will be taxed now, but whether the tax system will keep expanding in future.
Policy is changing the direction of investment
Details reported by Australian media suggest the changes amount to selective tightening. Family homes remain exempt, while capital invested in new housing can still receive some tax support. The real impact falls on investment flowing into existing homes. The policy seeks to change the direction of investment rather than investment itself.
This presents a practical problem: policy can change the rules, but it may not fully change behaviour. Whether investors will actually shift towards new homes, wait on the sidelines or leave the market remains unknown.
The Australian government is aware of this risk. Alongside the tax changes, the budget includes measures to lift productivity, such as encouraging business investment, streamlining approval processes and bringing in more skilled workers. To some extent, these measures are intended to offset the potential cooling effect of the tax reforms.
Whether that counterweight is sufficient remains for the market to answer.
Another perspective from the media
On Newstalk ZB, host Ryan Bridge raised a more direct challenge.
His view is that the fundamental issue behind house prices has always been supply, rather than tax.
He pointed out that Australia has long had a capital gains tax, yet house prices remain high. Sydney’s median house price is around A$1,700,000, while the national figure is close to A$1,000,000. If the tax system alone could bring prices down, Australia’s market should not have reached its current position.
More notably, Australian Treasury modelling predicts that these changes could result in around 35,000 fewer homes being built over the next decade.
This means that if tax reform weakens incentives to invest and develop, it could reduce supply rather than increase it.
Commentary and reflections: Australia changes its taxes as New Zealand watches the consequences
The greatest significance of Australia’s tax reform for New Zealand is that it makes a longstanding debate more concrete.
In the past, New Zealand’s discussions about capital gains tax have often remained at the level of principles: fairness, distribution and the gap between generations.
Australia’s experience brings the debate back to a more practical question:
Where will capital flow after the tax reforms?
If capital is indeed directed into new housing, the policy may achieve its intended goal. But if investors withdraw, wait on the sidelines or shift overseas or into other assets, the market could face tighter rental supply, slower development and more complex price movements.
Another possibility cannot be ruled out: as Australia’s tax system gradually tightens, New Zealand, which has yet to introduce a comprehensive capital gains tax, could become more attractive to some investors and entrepreneurs.
That is why New Zealand needs to look beyond what Australia has done and pay closer attention to what happens afterwards.
As the general election approaches, capital gains tax is likely to return to the centre of New Zealand’s political debate. Before taking a position for or against it, however, a more fundamental question deserves repeated scrutiny:
What problem is this policy actually trying to solve?
If the goal is unclear, or the approach does not match it, then regardless of how tax rates are designed, the result may neither change house prices nor improve supply, instead shifting costs to other parts of the market.
Australia has begun this experiment. New Zealand is still deciding whether to take part.