Tax changes won’t deliver productivity or GDP boost

Jacob Shteyman | June 4, 2026

Labor’s controversial tax changes will have no effect on economic growth or productivity, Treasury officials have conceded.

As the government passed changes to negative gearing, the capital gains tax and trusts through the lower house on Thursday, departmental officials argued the package would boost home ownership and improve intergenerational equity.

But the budget did not improve the outlook for GDP or productivity growth in either the near- or medium-term, Treasury told a senate estimates hearing.

“It, in aggregate, did not have a significant impact (to GDP growth) in the near term,” assistant secretary for macroeconomics Angelia Grant said.

At best, the budget firmed up Treasury’s confidence in its existing 1.2 per cent long-term assumption for productivity growth.

“If there were not policies … in order to increase productivity growth in Australia, then our assessment of the risks around the medium term would be different,” Dr Grant said.

“There isn’t a shift in the medium term parameters as a result of the tax package.”

Treasury secretary Jenny Wilkinson said other changes in the budget – including to the research and development tax incentive, loss carry-back provisions for businesses and thresholds for venture capital investment – would boost productivity.

Treasury’s productivity assumption was more optimistic than the Reserve Bank’s medium-term assumption of 0.7 per cent growth.

Productivity – as measured by GDP per hour worked – fell 0.6 per cent in the March quarter, the Australian Bureau of Statistics reported on Wednesday. 

GDP growth slowed from 0.9 per cent to 0.3 per cent in the first three months of 2026. 

“This solid result aligns broadly with our expectations at the time of finalising the budget, although the composition of growth varied a bit from our expectations,” Ms Wilkinson said.

Growth was almost entirely driven by business investment, reflecting strong growth in data centre building, she said.

But the economy could be further slowed by negative sentiment in the housing market, which has been depressed by the tax changes.

Compared to Treasury forecasts of a two per cent drag on home prices, Commonwealth Bank senior economists Trent Saunders and Ashwin Clarke estimated the budget will weigh on home prices by five per cent in 2026.

A slowdown in the property market was already underway before the budget due to global uncertainty and rising interest rates.

But the quick response to the tax changes suggested the near-term impact will be sharper than expected, the duo said in a research note on Wednesday.

“We now expect national dwelling prices to be flat over 2026, down from a forecast of three per cent at budget and five per cent in March,” the note said.

The tax changes have clearly had an impact on housing sentiment, NAB chief economist Sally Auld said.

As dwelling values fall, it could suppress household spending and economic activity via a negative wealth effect.

“The question we’re mulling over is how big is the correction in housing likely to be, and what that might mean for activity, not so much in the current quarter, but possibly in the back half of the year,” Dr Auld told AAP.

Housing Minister Clare O’Neil refused to say whether it was a good or bad thing that home prices were going down.

“What we want to see is sustainable growth over the long term,” she told reporters in Canberra.

“We can see that 400 per cent price growth that has occurred over a 25-year period is not sustainable for our country.”

Opposition housing spokesman Andrew Bragg pledged not only to repeal the tax changes, but to further increase the capital gains tax discount, which Treasury argued has fuelled investor demand and price growth.

“We are going to explore avenues to further cut taxes in the housing domain, because we think that lower taxes is what’s needed,” he said.

“We think we need a supply-side revolution to get the country to 250,000 houses a year.”