New analysis suggests that recent changes to Australia’s capital gains tax (CGT) regime could significantly delay young Australians’ ability to save for a home deposit, with estimates indicating it may take up to eight years longer under the Albanese government’s proposed system.

The revised CGT rules, which replace the existing 50 percent discount with an indexation method akin to one previously used during the Keating government, aim to adjust capital gains for inflation before taxing them. However, independent modelling by academics from Victoria University’s Centre of Policy Studies—Professors James Giesecke and Jason Nassios—and former New South Wales Parliamentary Budget Office chief economist Derek Francis challenge the government’s assumptions, painting a more severe picture for younger investors.

Using a portfolio starting at $50,000 and targeting a $150,000 deposit to fund a 20 percent share of a $750,000 home, Francis’s analysis found that, under the current tax system, achieving this goal would take 20 years. Under the new rules, the timeline extends to 28 years, an increase of 40 percent. This projection assumes a diversified portfolio with a 10 percent annual return, 3 percent inflation, and includes stocks that underperform relative to inflation—factors the Treasury's modelling reportedly did not fully incorporate.

A key criticism highlighted by the researchers is that the new system does not allow real losses to offset real gains effectively. If parts of an investment portfolio underperform inflation, those losses cannot be deducted against taxable gains, increasing the overall tax burden on investors.

Professor Giesecke noted that while the tax changes attempt to account for real gains, the treatment of losses is less comprehensive, leading to nearly full taxation of any positive returns even when a portfolio merely keeps pace with inflation. Their modelling shows that for portfolios registering a modest 1 percent real gain amid 3 percent inflation, approximately 98 percent of those gains would be taxed, causing an elongation in the time required to accumulate sufficient savings for a deposit.

The debate over the impacts of these CGT changes extends beyond gains in the stock market to broader housing market outcomes. Former Treasury secretary Phil Gaetjens expressed skepticism about Treasury’s assumptions related to rents and home prices, calling them “a bit rosy.” Industry groups—including the Real Estate Institute of Australia, the Property Council of Australia, Master Builders Australia, and the Housing Industry Association—have commissioned analyses suggesting greater upward pressure on rents and home prices than Treasury’s forecasts predicted.

Government officials defend the reforms as a return to the CGT system’s original intent, aiming to correct distortions caused by the 1999 changes that introduced the discount under former Prime Ministers John Howard and Peter Costello. The government argues that restricting negative gearing on new property purchases would reduce competition from investors, thereby improving housing affordability for first-home buyers.

An upcoming intergenerational report, expected to be released next week, is set to provide further analysis on tax policy and its implications for younger Australians seeking homeownership. Meanwhile, critics warn that the new CGT arrangements could stifle investment incentives, slow economic growth, and prolong challenges faced by young people trying to enter the housing market.