Capital gains tax changes in the 2025-26 budget: who wins, who loses, and the democratic deficit

The Albanese government's 2025-26 budget delivered the most significant capital gains tax shake-up in two decades, yet everyday Australians had zero input into decisions that will fundamentally alter how wealth is built and transferred in this country. It's a perfect case study in why our democratic system desperately needs reform.

What actually changed?

From July 1, 2025, the capital gains tax discount for assets held longer than 12 months dropped from 50% to 30% for individuals earning over $120,000 annually. For those under this threshold, the discount remains at 50%, creating Australia's first income-tested CGT system.

The family home exemption stays untouched, but investment properties, shares, and other assets now face significantly higher tax burdens for middle and high-income earners. Treasury estimates suggest this will affect approximately 680,000 Australians annually and generate an additional $3.2 billion in revenue by 2027-28.

A new "small investor protection" was introduced: the first $10,000 in capital gains each year remains eligible for the full 50% discount regardless of income level. This was clearly designed to shield smaller shareholders and property investors from the changes.

The winners and losers breakdown

Winners include: - Lower-income earners: Those earning under $120,000 keep the full 50% discount - Small investors: The $10,000 annual exemption protects modest gains - Renters and first-home buyers: Reduced investor competition may ease housing pressure - Government revenue: $3.2 billion extra to fund services and infrastructure

Losers face significant impacts: - High-income professionals: Doctors, lawyers, and executives face effective tax increases on investments - Property investors: Negative gearing becomes less attractive when combined with higher CGT - Retirees with substantial portfolios: Many will see retirement planning strategies undermined - Small business owners: Asset sales for business succession or retirement hit harder

The changes create some perverse outcomes too. A teacher earning $118,000 pays less CGT than a specialist nurse earning $125,000 on identical investments. Meanwhile, someone can structure affairs to stay just under the threshold while others cop the full increase.

The housing market reality check

Property investors are feeling the squeeze from multiple directions. Data from the Real Estate Institute of Australia shows investor activity dropped 23% in the six months following the budget announcement. CoreLogic's research suggests this contributed to rental market tightening in Sydney and Melbourne, where advertised rental properties fell to historic lows.

The government argues this will improve housing affordability for first-home buyers by reducing investor competition. Early indicators are mixed – auction clearance rates in Sydney dropped from 68% to 61% between budget night and December 2025, but median house prices have only declined by 3.1%.

For the millions of Australians who own investment properties (around 2.2 million according to ATO data), the changes represent a fundamental shift in retirement planning assumptions that many built over decades.

International context matters

Australia's previous 50% CGT discount was generous by international standards. The UK offers no discount but has annual exemptions. The US taxes capital gains at different rates based on holding periods and income levels, similar to our new system.

However, most comparable countries implemented such changes gradually or with extensive consultation periods. New Zealand's recent capital gains tax debate involved a comprehensive public consultation process and ultimately was abandoned after strong public opposition.

The democratic deficit exposed

Here's the fundamental problem: these changes affect millions of Australians' financial futures, yet voters had no direct say in their design or implementation. The 2022 election campaign barely mentioned capital gains tax reform. Labor's policy platform contained vague references to "ensuring the tax system is fair" but no specific CGT proposals.

Traditional democratic theory suggests we elect representatives to make these decisions on our behalf. But when major policy changes emerge without clear electoral mandates, where's the democratic legitimacy?

Polling by Essential Research in September 2025 showed 47% of Australians opposed the changes, 31% supported them, and 22% were unsure. Yet by then, implementation was already underway.

Why direct democracy would handle this better

Imagine if instead of backroom Treasury modelling and cabinet decisions, we had a proper democratic process:

• Informed deliberation: Citizens' assemblies could examine evidence from tax experts, property economists, and affected communities
• Real choice: Multiple options could be presented – different thresholds, phase-in periods, or alternative revenue measures
• Genuine mandate: Whatever emerged would have clear public support, not just party political calculation
• Ongoing accountability: If the policy failed to deliver promised outcomes, citizens could directly mandate changes

The Swiss regularly vote on tax changes through referendums. Their system isn't perfect, but tax policies have genuine democratic legitimacy that ours simply lacks.

Moving forward

The capital gains tax changes are now bedded down, but their impacts will unfold over years. Housing affordability, retirement planning, and government revenue will all shift in ways we can't fully predict.

What we can predict is that under our current system, if these changes prove problematic, voters' only recourse is to wait for the next election and hope the alternative party offers something better. That's not democracy – it's an elected oligarchy with occasional popularity contests.

Australians deserve better. We deserve the right to directly participate in decisions that shape our economic future, not just rubber-stamp whatever political parties dream up between elections.

Ready to help build a more democratic Australia? Take our [policy participation quiz](https://directdemocracy.com.au/quiz) to see how direct democracy could give you real influence over the decisions that matter to your life.