Negative Gearing and the Fair Go
I never really wanted to write political posts on this blog. This was to be about concrete products, manufacturing, and automation bits and pieces. But it is becoming harder to separate work from politics, because policy shapes incentives, incentives shape industries, and industries eventually shape the lives people are able to build. So even if you try to avoid politics, politics does not avoid you.
That is why I want to talk about negative gearing. The 2026 budget limits negative gearing to new builds from 1 July 2027, while existing arrangements remain unchanged for properties held before budget night 12 May 2026. Investors who buy established housing after budget night will still be able to deduct losses against residential property income, but not against other income like wages [1,2].
I actually think some reform in this area makes sense, because negative gearing probably should not exist in the form it does today. It makes little sense that property losses can reduce employment income in ways many other investments cannot. With shares, for example, you do not normally get to reduce your salary income simply because one of your investments performed badly. You can take investment risk, and you can be rewarded for it, but the downside should not be shifted too easily into the general tax system. Property has been treated differently for a long time, and it is not hard to see how that changed behaviour. At the dawn of the century, Australia’s national median house value-to-income ratio for houses was about 4x, but by 2026 it had moved closer to 12x, which says a lot [3].
This is why I do not have a major issue with the idea of reform itself. If the country wants less speculative capital flowing into established housing, then negative gearing is an obvious place to look. The issue, at least for me, is not the direction of the reform. The issue is how the reform is applied, especially when grandfathering creates one set of rules for people who already own assets and another set of rules for people entering later. If something is good policy with long-term national benefit, then it should be applied equally. It can be applied slowly, and it can be applied gradually, because people need time to adjust their finances. But the direction should apply across the whole system, across all people.
A better approach would have been a staged reduction over several years. For example, the deductible amount could reduce step by step until the system eventually reaches the intended outcome. That would still send the same policy signal, but it would do it in a way that brings everyone through the change together. People who are highly leveraged would feel it more, but that is also the nature of leverage itself across any form of investment. Risk and reward are supposed to travel together. If you take more risk and the policy environment stays favourable, you may do very well. If you take more risk and the policy environment changes, you may be exposed. That is not unfair by itself, because that is how risk works in every other market.
The issue with grandfathering is that it makes the economy feel like a timing game. If you already climbed the ladder, you keep the ladder. If you are young and entering now, the ladder is removed or at least made much harder to use. Australia talks a lot about the fair go, but a fair go becomes harder to believe in when the rules depend so heavily on whether you already owned assets before the change.
It also does not fully remove the advantage from people who already hold property. If someone already has an established portfolio, they can still benefit from the equity they accumulated under the old system. They may not need to use the same pathway in the future because the earlier pathway already helped them get ahead. That is why grandfathering can protect the exact group that benefited most from the policy being reformed.
Another issue being discussed is that the grandfathering may not only protect existing investment properties, but also some existing homeowners who later turn their homes into rentals. The budget says existing arrangements remain unchanged for properties held before budget night, and reporting since the budget has raised the possibility that an owner-occupier could move elsewhere and convert their current home into a negatively geared rental. If that is how the final rules work, then the policy becomes even more uneven, because the people outside the housing market are locked out of an advantage that some existing owners may still be able to access later [4].
This is why negative gearing reform matters beyond tax policy. It is really a question about whether policy corrections should move the whole country together or protect the people who already made it through. I think negative gearing should be reformed, and I think the existing system helped push too much capital into housing. But a policy can be directionally right and still feel wrong in the way it is delivered.
That is one of my issues with this budget. It may be ambitious in some areas, and some of the ideas may even be necessary. But when negative gearing is grandfathered, it does not feel fair go rather asking younger Australians to accept a harder version of the same country.
References
[1] Australian Government, 2026. Tax reform. Budget 2026–27. Accessed 18 May 2026.
[3] Domain Research, 2026. House Price Report: March 2026. Domain. Accessed 18 May 2026.