If Albanese wants this fight, he’ll need to gear up for a big one

Anthony Albanese has good reason to be cautious about changing the rules on negative gearing after years of dispute about the tax breaks for property investors.

The prime minister would not be the first leader to dream about protecting young home buyers from being outbid by property investors who can claim a tax benefit from their purchase.

If Prime Minister Anthony Albanese wants to change negative gearing, he’ll need to fight for it. But it could be the right call.Credit: Alex Ellinghausen

But this is a totemic policy in Australian politics because of the way any attempt at reform can be turned into an assault on aspiration or a scare about a greedy tax grab.

That means Albanese and his colleagues, including Treasurer Jim Chalmers, have to decide whether the policy gain is worth the political pain even if Treasury officials come up with elegant reforms.

The fact is that millions of taxpayers are negatively geared as a legitimate way to claim a tax benefit when the costs of an investment property exceed the income. And they vote.

How many are there? About 1.1 million people had a rental loss in 2023, according to Treasury, and they collected tax benefits worth $2.7 billion. But this is not the only way to measure the scale of any change.

There are 2.2 million taxpayers with investment properties, according to the Australian Tax Office. Even if only half were negatively geared last year, many others would have been in the past or will want to explore it in the future.

That amounts to more than 14,500 voters in every electorate. While many are in Liberal and “teal” independent seats, negative gearing can be popular in marginal seats.

This helps explain why former prime minister Scott Morrison decided it was safer to become an ardent supporter of negative gearing after flirting with change when he was treasurer. It also explains why Labor is so wary of doing anything after seeing former leader Bill Shorten lose two elections on a platform that included negative gearing reform.

These are not the only numbers that count. The impact on home values may be relatively small – just two per cent, say some. This counters any scare campaigns about plummeting house prices, but it also shatters the dream of fixing housing affordability with this single policy change.

The simplest reform is a cap on the number of properties. About 1.6 million people have one investment property, while another 600,000 have two or more. Another option is a limit on the value of the claims rather than the number of properties.

It is also open to the government to look at changes to the 50 per cent discount on capital gains tax when properties are sold – a much bigger tax concession.

Albanese and Chalmers have no reason to fear a bigger debate about negative gearing. They trekked through months of dark speculation about the “stage three” tax cuts before arriving at a mountain peak in full sunshine – with a fairer tax policy that was popular with voters. They stood for Labor values on personal tax and could do it again on negative gearing.

In doing so, they might answer one of the questions about this government. Is Labor legend Bill Kelty right to call it “mired in mediocrity”? How bold is Labor prepared to be in a tight election?

Whatever the outcome, Greens leader Adam Bandt will accuse Labor of being too timid while Opposition Leader Peter Dutton will run a scare campaign about a war on aspiration. A key point is that nobody says the government wants to scrap negative gearing or the capital gains tax concession – the atomic bomb of reform that would raise $176 billion in tax revenue over a decade.

The government is right to examine the options. Treasury tracks the cost of negative gearing each year and should model potential changes. It is up to Albanese and Chalmers to decide how far to go, how much money to raise, and how many votes to risk.

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