TAX BREAKS IN FRAME FOR REFORM PUSH

Mention tax reform in Australia, and it’s likely that two issues will crop up in conversation – discounts for capital gains, and the nation’s goods and services tax (GST).

Both the capital gains tax (CGT) and the GST have been in place for decades; the CGT regime was introduced by the Hawke Government in 1985 and the GST by the Howard Government in 2000.

As expenditure pressures build on the Federal Budget, so too do calls for a reform of Australia’s tax regime to lift and expand the base for Federal revenue.

The CGT regime is a prime target for some commentators, especially in the context of the challenge to provide more affordable housing.

Owner-occupied or ‘main residence’ houses are exempt from capital gains, if held for more than 12 months. And investor-owned housing also qualifies for a 50 per cent

CGT discount, again if held for 12 months or more.

The annual Tax Expenditures and Insights Statement, released by Federal Treasury in late 2025, assesses the tax exemptions on a ‘revenue foregone’ basis, for concessions and deductions larger than $500 million.

In 2025-26, Federal Treasury estimated that the main residence exemption was worth $28 billion in revenue foregone; the figure for the CGT discount component for the main residence was even higher – $32 billion.

For residential property investments alone, the Parliamentary Budget Office calculated last year that in 2025-26, the revenue foregone from the capital gains discount would be $5.9 billion.

So in 2026, one can expect to hear a lot more about capital gains tax and property; indeed, in November last year, the Senate established a Select Committee on the Operation of the CGT discount, to report in March.

And then there’s the 10 per cent goods and services tax.

While it administers the GST, the Federal Government does not directly spend GST revenue itself.

Instead, revenue raised by the goods and services tax is subsequently redistributed among the states and territories, as allocated by the Commonwealth Grants Commission.

In the March 2025 Budget Papers (Federal Financial Relations), GST receipts were forecast to be $94.2 billion in 2025-26.

Established in 2000, the GST was originally intended as a broad-based tax on consumption and services. By the time it became law, however, the GST was substantially less broad-based.

As with CGT concessions, Federal Treasury’s Tax Expenditures and Insights Statement assesses the ‘revenue forgone’ of a host of GST exemptions.

In 2025-26, for instance, GST exemptions for food is forecast to account for almost $10 billion in revenue foregone.

GST exemptions for health and medical services account for $6.75 billion; education, $4.45 billion; financial supplies (input taxed treatment and reduced tax credits) $4.75 billion in total, and child care services, $2.57 billion.

Residential care, community care and other care services draw a GST exemption of $1.8 billion, with exemptions for drugs and medicinal preparations accounting for $570 million, and for private health insurance, $520 million.

Water, sewerage and drainage bills are also GST-exempt, at a foregone revenue of $1.38 billion.

Based on Federal Treasury’s analysis, GST exemptions in 2025-26 will total at least $32.7 billion – and that excludes GST exemptions valued at less than $500 million.

With CGT residential property concessions and GST exemptions totalling around $100 billion a year, expect to read and hear more about suggested tax rollbacks as the Federal Government mulls over future tax reform.

Gavin Clancy is a Senior Consultant at Lunik