The Business Council of Australia (BCA) thanks the Senate Economics Committee for the opportunity to make a submission to the Senate Inquiry into Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. The Bill proposes changes to the personal tax system around capital gains tax, negative gearing, a new Working Australians Tax Offset and introduction of a $1,000 standard deduction for work-related expenses.
The Explanatory Memorandum outlines the purpose of the changes is to “help improve the fairness of the tax system, support home ownership and help fund new tax cuts for workers.”1 The BCA supports these objectives, but it is unlikely that the proposed changes are the best way to achieve them. Indeed, the proposed changes are estimated to result in an increase in rents and 35,000 fewer homes being built. The impact on investment beyond housing has not been assessed, but higher taxes on capital will reduce investment.
The BCA urges the Parliament to not proceed with the Bill. We do not support the proposed changes or the process through which they have been developed and are being advanced. The reforms will reduce investment, reduce productivity, reduce economic growth, and reduce housing supply by 35,000 homes. As a result, the changes are strongly opposed.
The Government argues the Bill’s proposed changes represent “the most significant tax reform package in more than a quarter of a century”. It affects a large number of Australians: more than 10 million Australians held investments outside their home and superannuation in 2023 (over half of all adults at the time) and around 3 million households are renters. This context makes it particularly concerning that the process and timeframe around the proposed changes in the Bill are manifestly inadequate on any reasonable measure.
The Parliament has a key role to play in scrutinising the proposed changes in their entirety to fully understand and be held accountable for the full impact. The changes as they are currently proposed will increase the complexity of the tax system, will not improve its efficiency, and raise many equity concerns. There are many unresolved elements of the Bill and significant conceptual and practical issues with the transition to the new scheme. The consequences of the Bill – including the impacts on investment – have not been assessed beyond the property sector. Despite this, the entire process has been needlessly and recklessly rushed.
The Bill demonstrates why the process of tax reform cannot be ad hoc or piecemeal. Tax reform should be holistic, and proposals must be carefully assessed on their merits and how they collectively contribute to a more effective tax system. The full suite of possibilities must be presented to the community, with clarity about their benefits and trade-offs. A comprehensive policy development and assessment process must follow best practice principles – considering all the policy options and various trade-offs. This also means a package of reforms must be considered and developed in its entirety, with key and consequential elements developed and codified within the primary legislation.
If changes are to be rushed at this time, they should be restricted to changes to the capital gains tax discount with respect to existing real estate. The alternative is reduced overall investment, lower productivity growth and lower living standards for Australians. Regardless, the only sure way to reduce housing prices is to increase the supply of new dwellings and reduce the cost of constructing them.
The Bill also includes the removal of important Fringe Benefits Tax (FBT) exemptions. This should instead be amended so that the otherwise deductible rule is reduced by no more than $1,000 per employee per year. This will otherwise have significant costs and flow in implications for businesses and workers.
The BCA supports personal tax reductions including through the Working Australians Tax Offset. The BCA also supports a cap on the tax to GDP ratio which effectively prevents ongoing increases in tax due to bracket creep.
Key recommendations
Recommendation 1
- The BCA urges the Parliament to not proceed with the Bill. We do not support the proposed changes or the process through which they have been developed and are being advanced.
Recommendation 2
- If the government decides, against our advice, to proceed with the Bill, then Schedule 4 should be amended in the following ways:
- Proposed Section 24(1A) should be amended so that the otherwise deductible rule is reduced by no more than $1,000 per employee per year, rather than switching off the otherwise deductible rule entirely for the full value of a packaged benefit.
- The existing FBT exemption for work-related items should remain where those items are provided primarily for use in an employee’s employment, including where they are provided under salary packaging arrangements.
- If the FBT exemption is to be limited, further explanation should be provided to clearly justify the policy rationale, and appropriate transitional arrangements should be introduced to minimise disruption to existing employer and employee arrangements.
Recommendation 3
- If the government decides, against our advice, to proceed with the Bill, then Treasury should provide a separate estimate of the increased FBT revenue from Schedule 4 and the compliance costs of implementing the changes to FBT in Schedule 4.
Recommendation 4
- Any reform process should involve a comprehensive policy development and assessment process that follows best practice principles and considers the full range of policy options. This means a package of reforms must be considered and developed in its entirety, with key and consequential elements developed and codified within the primary legislation.
Recommendation 5
- If the government decides, against our advice, to proceed with the Bill, then the Bill should include a requirement for a mandatory, fully independent and transparent post-implementation review within three years to assess the effectiveness and efficiency of any changes in meeting their objectives. This review should be brought forward in the event of an unexpected economic downturn or other relevant major developments.