Katy Gallagher (ACT, Australian Labor Party, Minister for the Public Service) | Hansard source

I thank other senators for their contributions to this important debate. This is a bill for workers, first home buyers and future generations. It's the first step in delivering the most ambitious tax reform package in a quarter of a century. These reforms will make it easier for Australians to buy their first home. They will cut income taxes for over 13 million workers, again and again. The reforms will better align the tax treatment of labour and asset income. I would like to thank those senators who have contributed to this debate and the experts and stakeholders who have shared their views as well.

Schedule 1 to the bill and the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026 implement significant reforms to capital gains tax arrangements. These reforms replace the 50 per cent CGT discount for individuals, trusts and partnerships with a cost based indexation and a 30 per cent minimum tax rate on capital gains accruing from 1 July 2027. The 50 per cent discount is an arbitrary adjustment for inflation, overcompensating some investors while undercompensating others. Since it was introduced, it has distorted investment decisions, particularly in favour of existing housing, and the greatest share of the benefit has flowed to those who earned the most over their lifetime. At the same time, homeownership has been pushed further and further out of reach, particularly for younger Australians. These reforms will correct the mistake made by the Howard government, ensuring investment decisions are made on the basis of economic returns, not tax advantages, which will support productivity over time. The introduction of the minimum tax also addresses distortion in the system by reducing the incentive to defer realisation of capital gains, ensuring gains are subject to a tax rate closer to the rate paid by most workers. To maintain support for new housing supply, investors who buy new builds will be able to choose either the 50 per cent CGT discount or indexation and the minimum tax when they sell the property.

The government will also ensure all 2.7 million active small businesses, and 98 per cent of all active businesses, will be eligible for generous CGT concessions by expanding eligibility for the 50 per cent reduction on active business assets, which applies on top of the discount for inflation, and we are consulting on the design of a 50 per cent CGT discount for early-stage investors, including founders and employee share scheme participants of innovative startup businesses, in recognition of the risk that founders and early investors take and the contribution they make to our economy. This is in addition to all other measures that lower taxes for business announced in the budget, which are being delivered in future legislation. It brings the total amount of new tax measures to support businesses and startups in the tax reform package to over $3.8 billion.

Schedule 2 to the bill will limit negative gearing for residential property investments to new builds. Properties held at announcement can still be negatively geared in future years until sold. New builds can continue to be negatively geared after 1 July 2027, ensuring the benefits of negative gearing are directed to investments that support growth in Australia's housing stock. Together, these reforms will help to level the playing field for first home buyers while maintaining support for investment in new housing supply. They will support 75,000 more homeowners into the housing market, equivalent to reversing a decade of declines in homeownership.

Schedule 3 to the bill implements a new working Australians tax offset of up to $250 for over 13 million workers. The $250 WATO will increase the effective tax-free threshold for workers by nearly $1,800 to $19,985, or to $24,985 for workers also eligible for the low-income tax offset. This represents the largest increase to the effective tax free threshold since 2012-13.

Schedule 4 to the bill implements a $1,000 instant tax deduction from the 2026-27 income year. This measure implements the government's election commitment and is an important element of our tax reform package. It will make the tax system simpler and deliver additional relief to Australian workers.

The government is cutting taxes five times in three different ways, with our next round of tax cuts from 1 July, just next week. When combined, our five tax cuts will mean an Australian worker on average earnings could receive a benefit of up to $2,816 a year from 2028.

The government is also moving targeted amendments to the bill to provide certainty on implementation detail, consistent with the original intent of our policies announced in the budget. These amendments extend eligibility for the 50 per cent active asset reduction to businesses with turnovers of up to $10 million. They will ensure deductible gifts and donations will reduce capital gains that are subject to the minimum tax; provide the list of income support payments that qualify for an exemption from the minimum tax on capital gains; embed the calculation method for the working Australian tax offset in legislation; and remove ministerial powers no longer needed to give effect to the government's policy intent or otherwise limiting the scope of these powers while the government consults on final details.

The government has also agreed to support an amendment that will be moved by the Australian Greens to ban future limited recourse borrowing arrangements for residential property by a superannuation fund. Multiple inquiries have raised concerns that these arrangements raise risks for superannuation investors, including the 2014 Murray financial system inquiry conducted for the coalition. Limiting new arrangements going forward will help to protect people's savings.

I note the committee report into these bills. I thank the committee for their inquiry and for the report, and for the recommendation that the bills be passed. With regard to the coalition's dissenting report, the government supports the passage of these bills as a package, with passage this sitting period providing certainty for investors, workers and businesses. The government has no plans to change the Charter of Budget Honesty, and the government is delivering real cost-of-living relief by cutting taxes five times, including two more tax cuts in these bills.

With regard to the additional comments of other senators, the government's view is that the proposed transitional arrangements are appropriate for these reforms. The government has separately announced that all types of testamentary trusts will be exempt from the minimum tax on discretionary trusts, provided they are established for genuine testamentary purposes. The government is making the $20,000 instant asset write-off permanent from 1 July 2026. The government has not proposed reintroducing averaging, which was removed for integrity reasons. The government is investing $47 billion to increase housing supply to get more first home buyers into homes and to build 55,000 more social and affordable homes. The government released modelling and analysis of these changes in the budget and continually monitors tax settings over time.

As always with tax policy changes of this kind, there are complex interactions and details. We will work through these in the usual way. We have indicated, for example, that complex and specific details such as the interactions with attribution managed investment trusts, tax consolidation, residency changes and other issues will be legislated through future tranches of legislation. Legislating significant reforms in tranches is a standard approach, and past reforms such as the GST and other major changes have similarly been implemented in tranches.

These reforms are delivering the real change that Australians are calling out for. Unlike our opponents, who are defending a broken status quo, we are helping workers with even more income tax cuts and helping first home buyers get into the housing market. We know that big tax changes like these are always contested and contentious, but they are the right decisions for the country. We are proud of these bills and proud of the real difference they will make for workers, for first home buyers and future generations. I commend the bills to the Senate.