Tax concessions for housing investors to cost $20bn a year within a decade, analysis shows

Tax concessions for housing investors will cost the budget more than $20bn a year within a decade and will overwhelmingly benefit high income earners, new analysis from the parliamentary budget office (PBO) shows.

The dramatic increase in the cost of the tax concessions comes alongside the rapid rise in interest rates, which will increase the amount landlords can deduct for negatively geared properties.

In 2021-22 the amount of forgone revenue for both measures totalled just $8.5bn.

According to the PBO analysis, the combined amount of forgone revenue of both measures over the next decade will be $157bn, with the cost of negative gearing to reach $97bn as interest rates rise, and capital gains tax discounts to total $60bn.

A distributional analysis also undertaken by the PBO showed that more than half (56%) of the value of the two tax concessions will go to the top 10% of income earners, or those earning more than $189,000 a year.

In 2032-33, the forgone revenue of negative gearing tax deductions will be worth $12.7bn based on the official cash rate staying at 2.85% from the end of this year, and rising to $13.8bn a year if the cash rate climbs to 3.35%. At the same time, the value of the capital gains tax discount would be worth $7.7bn in forgone revenue.

Of this combined $20.4bn, $11.4bn would flow to those earning more than $189,000 a year.

The PBO analysis found that regardless of the interest rate, the amount flowing to high income earners from negative gearing concessions remained stable, with 39% for the top 10% of income earners, and 65% for the top 30% of income earners.

This amounted to the average property investor claiming about $4,640 by the end of the decade.

For capital gains tax, the modelling finds that 85% of the forgone revenue comes from the top 10% of income earners, with the average impact of the capital gains tax discount for landlords selling an investment property in 2032-33 estimated to be $2,810.

The modelling assumed stable rents and house prices, and did not account for any behavioural change that could arise from policy or economic changes.