The Capital Gains Tax discount is turning Australia into neo-feudal kingdom where your quality of life and opportunities are determined more by your parents’ real estate portfolio than your own hard work.

Successive Australian governments have funnelled cash and power through the CGT discount into the hands of an ultra-wealthy elite who own vast property portfolios, and to the bankers and billionaires that own the property debt.

Former Treasury Secretary Ken Henry called this current tax setup an intentional act of “intergenerational bastardry“.

At the heart of this divide is the CGT discount, a tax break that has fundamentally broken the housing system.

The CGT discount gives property speculators a 50 percent reduction on the tax they owe when selling an asset held for over a year.

The expectation of this lightly taxed unearned windfall acts as a primary incentive for property speculation, making the prospect of running a property at a rental loss (such as through negative gearing) financially bearable for speculators. This therefore protects housing as a store of wealth for the rich and actively turns housing into a commodified, speculative asset for overinvestment by people who already own property.

This was framed by Peter Costello (the treasurer under the John Howard government) as an offset for inflation, but it was really a massive subsidy for speculation. By taxing capital gains at half the rate of working, the system incentivises Australians, especially the already-rich Australians, that owning things is twice as valuable as actually doing things.

What’s more, the CGT turned owning property into an enormous “loss” making (tax-handout) exercise. By 2023, being a property speculator/landlord cost Australia’s public purse $11 billion.

In 1999, before the CGT discount existed, Australian landlords reported a collective profit of $219 million.

This is not because land-lording became a bad business. Rather, because the combination of negative gearing and the capital gains discount encourages investors to report losses on paper to chase tax-free wealth later.

You may think this is just bad tax policy, but it is in fact state-sponsored money laundering for the ultra-rich. The $11 billion “loss” is a manufactured accounting trick designed by John Howard and Peter Costello and continued subsequently by the neoliberals in Treasury to hollow out the public purse while private land values soar.

The financialisation of housing allows existing homeowners and landlords to borrow against their holdings and use tax breaks to accumulate an ever-growing share of residential property.

This facilitates a direct transfer of wealth from the bottom to the top, as renters are effectively forced to pay off the loans of investors while those investors accumulate capital gains.

The CGT massively and dangerously distorts behaviour in the real economy.

Data from the Australian Bureau of Statistics shows that 92 percent of investor finance flows into existing properties rather than new builds. The CGT costs us $11 billion fails to creates a single new roof for someone to live in but it does build bidding wars between existing asset owners.

Instead, it gives tax-advantaged property speculators a massive bidding advantage over people trying to buy a home. The bidding between cashed up property speculators pushing up the price against each other inflates the price of the existing houses and leaves everyone else watching from the side-lines.

Traditional neoliberal economists often call this tax system “efficient”, but we must ask what they are efficient at. Our current tax system is efficient at funnelling huge amounts of wealth into a handful of people who live in elite postcodes. For example, people who live in Sydney’s Wentworth receive nine times the benefit, and people in Toorak receive five times the benefit.

This system creates a form of post-code austerity, where working class people live in suburbs that struggle to have basic services and amenities, while their rent pays for Toorak and Wentworth’s luxuries.

When industry groups defend the capital gains discount, they are prioritising asset price speculation over housing stability for the community and reinforcing existing wealth and power of the ultra-rich asset owning class.

Warwick Smith makes the point:

Virtually every substantial submission to the committee advocating for leaving the discount unchanged came from those who directly benefit from the current system. This includes the Property Investment Professionals of Australia, the Property Council, and the Real Estate Institute.

He is absolutely correct that the people and institutions that financially benefit from the current extractive CGT are reinforcing a radical transfer of wealth from everyday people into the global laundromat of financial capital.

The Ken Henry quote is widely cited, but also worth examining. Focusing solely on “intergenerational fairness” risks obscures the underlying class nature of what is happening.

This is not about Boomers vs Millennials. When we focus only on age, we ignore the fact that a wealthy young person inheriting a property portfolio has more in common with an older landlord than they do with a working-class renter of their own generation.

The real divide is not between years of birth, but between those who live by owning and those who live by working.

The Senate inquiry found that tax benefits are concentrated in elite, high-income electorates. This demonstrates that the CGT discount is a tool that extracts wealth from everyone else and siphons it upwards to the elites living in exclusive, ultra-rich suburbs.

If you only seek “fairness” between age groups, you are merely reshuffling the deck of the asset-owning class rather than challenging the exploitative and extractive nature of rent, including the mortgage, itself.

As affordable social housing has been stripped away, millions have been pushed into an insecure and expensive private rental market (where another form of public-purse subsidy, the Rent Assistance payment, secretly transfers money from government to landlords). This lack of housing security ensures that workers must work longer and longer hours at minimum wage or below simply to keep a roof over their heads.

Transforming housing into a speculative financial asset was deliberately designed to make middle-class individuals view themselves as “mini-capitalists” whose prosperity relies on financial asset markets rather than their wages.

When I criticise the asset owners and property speculators, I am primarily referring to the ultra-rich, the billionaires and property hoarders with portfolios of 100s of houses.

The CGT discount is a tool of class power used by the financial elite and the industry groups that serve those elites to prioritise speculation over human need. It is a modern form of enclosure, where the asset owners turn the human necessity of housing into a private fiefdom accessible by birth-right.

Reducing the CGT discount is a start — essential in fact — but the ultimate goal must be to dismantle the “neo-feudal” system where life opportunities are dictated by property ownership.

We need a system that creates stable homes for everyone, and demolishes the tax-advantages of the ultra-rich property hoarders. Until then, we are effectively working on the lord’s manor as the lord’s “passive income” ATM.