Australia's tax overhaul sparks housing price correction and broader market shifts

The Australian Federal Budget introduced sweeping tax reforms that remove negative gearing and reduce the capital gains tax discount for investment properties. HSBC economist Paul Bloxham said the changes, combined with tighter Reserve Bank policy, have quickly drained investor demand, causing housing prices in Sydney and Melbourne to fall and signaling a broader 2‑6% decline expected in 2027. The reforms are also prompting a shift in equity investing, with investors moving from individual stocks to pooled funds such as ETFs and listed investment companies due to the new inflation‑adjusted CGT rules.

The housing slowdown is expected to weigh on consumer spending and construction, giving the Reserve Bank more leeway to address inflation. Meanwhile, Deloitte Access Economics warned that Australia faces the longest stretch of sub‑2% growth since the early 1990s, forecasting another interest‑rate rise in August and a pause until late‑2027. The outlook highlights the economy’s vulnerability to high debt, geopolitical shocks and the concentration of export sectors, underscoring how the tax policy shift is intersecting with broader fiscal and monetary challenges.