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Labor’s tax reforms, primarily aimed at investment properties, also affect other assets, including shares.

This has prompted concerns that the changes in the budget may impede young Australians’ efforts to build wealth for financial goals like a house deposit through an equity portfolio.

Are the reforms detrimental to a share portfolio – and could they hinder home ownership among young people?

How are shares affected by the budget?

Labor’s changes to negative gearing are specifically targeted at residential property, leaving other asset classes, such as shares, unchanged.

But the new capital gains tax (CGT) rules will apply to all CGT assets, including equities.

Under the changes, from 1 July 2027, the 50% CGT discount will be replaced by a system known as cost-base indexation, covering a variety of investment assets held for more than 12 months.

If shares are bought on 1 July 2027 or after, they will be subject to the new rules, which take into account inflation before working out the capital gain that is applied to an investor’s taxable income.

If the shares are held before 1 July 2027 and sold after that date, they will be subject to transitional rules that use both methodologies.

Are the changes in the budget bad for my share portfolio?

The CGT calculations vary according to inflation rates, equity returns and a person’s income tax rate. 

In general, an investor will probably be worse off under the new system if their shares have surged in value, but potentially pay a bit less tax if the stock performance has been modest.

They will retain the ability to negatively gear their portfolios, meaning any fallout is quite limited.

Negative gearing a share portfolio involves borrowing money to buy stocks where the interest on the loan exceeds the dividend income, allowing an investor to claim the loss as a tax deduction against other income, such as a salary.

The reforms mean tax payable on profits won’t drop under 30%, with only a few exceptions, closing a loophole that could allow someone to pay lower amounts of tax if they time the sale to coincide with a period of low income.

Will home ownership become harder for young Australians?

The tax changes do protect the existing arrangements for those who have accumulated wealth, which is a point made by the shadow treasurer, Tim Wilson.

But the tax system, along with a severe under supply of housing, has also helped fuel decades of worsening inequity.

House prices have risen more than 400% since 1999, according to budget data, more than twice the pace of wages growth, creating an affordability crunch in Australia.

These price movements have put younger generations in a bind because setting aside some of their salary for a home deposit is usually no longer sufficient, prompting many to invest in shares, or even cryptocurrency, to try to bridge the gap. 

On their own, Labor’s reforms might slightly diminish the appeal of share market trading.

At the same time, the goal of home ownership will now be slightly more attainable, because investors won’t have such an advantage over prospective owner-occupiers.

This means that younger Australians who are using investments like shares to try to obtain a deposit will, overall, be better off.

As Sydney-based financial adviser Andy Darroch from Independent Wealth Advice says: “Whatever you lose in the new tax framework from your shares, you’ll more than gain back because the house you are after will be slightly cheaper than it would have been under the old system.

“Yes, the medicine of investing to get a deposit is slightly less effective, but the disease of unaffordable housing is not quite as bad.”