The Australian Council of Social Services has called for reforms to negative gearing and capital gains tax discounts, saying they have supercharged inequality and exacerbated the housing crisis.

According to the Australian Council of Social Services (ACOSS), the next government should halve the capital gains tax discount from 50 per cent to 25 per cent over five years and restrict negative gearing such that losses can only be deducted against investment income, not wages.

It said current tax settings were fuelling inequality by encouraging speculative investment in housing, boosting competition between prospective home buyers and wealthy investors.

“Independent modelling indicates that halving the capital gains tax discount and curbing negative gearing would reduce home prices by up to 4 per cent, similar to the impact of the government’s target to build an additional 1.2 million homes over five years,” Dr Cassandra Goldie, chief executive of ACOSS, said.

“Politicians claim that 'mum and dad' investors are the ones benefiting from these concessions – but our analysis shows that the wealthiest 10 per cent own two-thirds of investment property,” Goldie added.

“These tax breaks disproportionately benefit the well-off in our society while millions struggle to pay the rent, let alone save a deposit to buy their first home.”

Housing prices have increased by 142 per cent since 1999, while wages have only risen by 44 per cent, ACOSS said. This has locked many first-time home buyers out of the market and caused others to service eye-wateringly high mortgages.

Prior attempts to reform the taxes were politically unpopular, with Labor having brought the policy to the 2016 and 2019 federal elections and having lost both.

Treasurer Jim Chalmers ruled out tax reform as a part of Labor’s solution to the housing crisis.

“We have made it very clear through the course of this week that we have a broad and ambitious housing policy already and those changes aren’t part of it,” Chalmers said last year regarding housing tax reform, as reported by The Australian Financial Review.

ACOSS argued that the government must tackle the housing issue from both the supply and demand sides and that reducing speculative investment in housing was an important part of the solution.

By removing the tax concessions, economic modelling found that the rate of home ownership would increase by 2 to 5 per cent.

ACOSS said the tax breaks only go to the wealthiest Australians who are not bearing the brunt of the housing crisis. A significant portion (82 per cent) of the capital gains tax discount went to the highest-earning 10 per cent of households, alongside 39 per cent of negative gearing deductions.

Furthermore, 81 per cent of investment loans were for existing properties and did not contribute to the construction of new housing, ACOSS said.

It suggested that government income gained through curbing the tax breaks could be spent on policies that materially address the housing crisis.

Annual foregone revenue from investment property tax breaks ($11 billion in 2023–24) was greater than annual federal expenditure on all other housing assistance combined ($10 billion in 2023-24), including social housing and rent assistance.

“Australia’s absurdly generous tax breaks are supercharging the housing crisis and rising inequality in our society,” Goldie said.

“As long as our tax system encourages speculative investment in housing, the housing affordability crisis won’t be solved just by building more homes."