The Case for Scrapping GST on New Homes and Why It Just Got More Urgent

The Albanese Government struck a deal with the Greens on 23 June to pass its landmark investor tax reforms through the Senate. Within days of that deal being secured, a campaign is already arguing that Australia is solving the wrong problem.

With the negative gearing and Capital Gains Tax legislation now effectively through parliament, attention inside the property and construction industry has shifted sharply to what the reforms leave unaddressed: the cost of building homes in the first place.

A parliamentary petition lodged by SMATS Group, a tax and investment advisory firm, calls on the Federal Government to abolish the 10% Goods and Services Tax on new residential construction. To understand what is at stake: in Queensland, the GST alone adds more than $45,000 to the cost of a new home compared to an established one at the same price. Add stamp duty, and a buyer of a new home pays over $61,000 in taxes at settlement that a buyer of an equivalent established property does not. The SMATS petition argues that targeting this cost – the supply side of Australia's housing crisis – would deliver faster and more durable affordability gains than the demand-side changes now headed for royal assent, the formal step that makes legislation law.

What the Labor-Greens deal actually includes

The deal struck on 23 June between the Albanese Government and the Australian Greens will bring the first tranche of the housing tax legislation to a Senate vote within a fortnight. The package has two main components.

First, negative gearing -- the tax arrangement that allows property investors to deduct losses from a rental property against their other income -- will be abolished for future purchases of existing residential properties. Properties purchased before the legislation takes effect remain eligible. New builds are specifically protected and will continue to attract negative gearing under the new rules.

Second, the existing 50% Capital Gains Tax discount, which halves the tax paid on the profit from selling an asset held for more than 12 months, will be replaced with an inflation-indexed system from July 2027. Under the new arrangement, investors can only deduct the portion of gains that exceeds inflation, meaning real gains are still taxed but the blanket 50% discount no longer applies regardless of how much prices rose above inflation.

Here is where the deal introduces a separate change -- one that specifically affects Australians using superannuation to invest in property.

The deal also includes a significant concession to the Greens that has alarmed parts of the superannuation and property sectors: a ban on future Limited Recourse Borrowing Arrangements within Self-Managed Superannuation Funds for residential property.

A Limited Recourse Borrowing Arrangement, commonly called an LRBA, is the mechanism that allows a Self-Managed Superannuation Fund to borrow money to purchase an investment property. It is called "limited recourse" because if the fund defaults on the loan, the lender can only recover the property itself, not the fund's other assets. In plain terms, it is the way many Australians have used their superannuation to buy property with borrowed money.

The government sought to downplay the market impact of the ban, noting that LRBAs for residential property constitute "less than 1 per cent of total residential property borrowing and less than half a per cent of new residential borrowing each year." Cate Bakos, chair of the Property Investment Professionals of Australia, disputed the framing. "Given that most self-managed superannuation balances are insufficient to purchase property outright, a limited recourse borrowing arrangement is often the only option for a fund to invest in direct property," she said.

Why new homes carry a tax that resales do not

Understanding why requires a brief look at how the GST currently works and where it applies in Australian housing.

When an Australian buys an established home – a property that has been lived in before – no GST is applied to the sale. The transaction attracts stamp duty, but nothing more in terms of consumption taxes.

A newly built home is treated differently. Because it is classified as a new supply of taxable goods, the 10% GST applies. In plain terms: every new house or apartment built in Australia has a federal tax layered into its purchase price that an equivalent established property does not carry.

This distinction matters because it shapes the economics of building. Developers and builders must price GST into their costs, which flows through to the final price paid by buyers. The GST component is not recovered by the builder. It is collected by the federal government and distributed to the states and territories.

According to figures cited in the SMATS petition, drawing on Australian Bureau of Statistics and industry data, this GST component adds between $35,000 and $59,000 to the average cost of a new home depending on the state.

The full state-by-state breakdown from the petition:

SMATS Group Executive Chairman Steve Douglas frames the asymmetry as a structural distortion that actively discourages new supply. "GST simply does not need to be on new residential construction as the GST revenue passes to the states and they are increasingly benefiting from the dramatic increase in stamp duty charges on the higher transaction prices currently being achieved," he said.

The double levy that hits only new builds

There is a second dimension to the tax treatment of new homes that Douglas describes as a "double dip": new homes attract both GST and stamp duty simultaneously, whereas established homes attract only stamp duty.

Stamp duty is a state-based tax on the transfer of property – essentially a fee charged each time a property changes hands, calculated as a percentage of the purchase price. On an average new home in Queensland priced at around $530,000, stamp duty alone adds approximately $15,925. Layer the GST component of roughly $45,469 on top, and a buyer of a new home is paying over $61,000 in taxes before they turn a key, compared to around $15,925 for an equivalent established property in the same suburb.

The SMATS petition argues that abolishing GST on new construction would immediately cut the cost of building a house by 10%, and reduce the price of new apartments by approximately 6 to 7% under current GST margin scheme arrangements. The margin scheme is a concession available to developers that calculates GST on the profit margin of a sale rather than the full sale price, which is why the saving on apartments is smaller than on standalone houses.

The takeaway: the tax structure currently makes a new home materially more expensive to buy than an established equivalent, at the precise moment when Australia needs more construction activity, not less.

What the supply side numbers say

The argument that the investor tax changes pose a risk to housing supply has been made consistently by industry groups throughout the Senate process, and the data they are citing has grown sharper in recent weeks.

Modelling commissioned by Master Builders Australia estimates the budget legislation will result in approximately 9,000 fewer homes being built over four years compared to a scenario without the reforms. Master Builders chief executive Denita Wawn described the Senate Economics Legislation Committee's decision to recommend the bill's passage as turning "a blind eye to the Budget's impact on housing supply."

The same modelling projects rents would rise by $477 per year by 2029-30 for a rental priced at $600 per week, as landlords facing reduced after-tax returns exit the market or redirect investment away from residential property.

Thomas McGlynn, a senior executive at Ray White Group, said the reforms would not solve the underlying problem. "Housing affordability is ultimately a supply issue, and history shows it's very difficult to tax your way to more housing," he said.

Those figures land against a construction backdrop that is already under pressure. The Australian Bureau of Statistics reported in June 2026 that total dwelling approvals fell 3.4% in April to 16,710, with private-sector house approvals down 1.0% and apartments and other dwellings down 3.6%. The trend estimate remains roughly 10% above year-earlier levels, but well short of the construction volumes needed to meet the government's stated housing targets.

The legislation is passing into a construction market that is already softening. The supply-side arithmetic will be tested quickly.

The budget neutrality argument

The SMATS petition acknowledges the obvious objection: removing GST from residential construction would reduce the revenue that the federal government collects and distributes to the states. The petition's counterargument rests on three claims.

First, the national GST pool is growing rapidly regardless of what happens in residential construction. The petition cites budget forecasts projecting GST collections rising from $99.3 billion in 2025-26 to $109.2 billion in 2026-27, a single-year increase of nearly $10 billion. The residential construction exemption would represent a fraction of that growth.

Second, state governments are already collecting substantially more stamp duty as property values rise, partially offsetting any reduction in GST distributions.

Third, the proponents argue that cheaper new homes would stimulate additional construction activity, which would itself generate economic activity, GST revenue from materials and labour, and additional stamp duty on completed sales.

Whether state governments, which rely on the distribution of GST revenue to fund essential services, would accept a reduction in their share without a federal compensation arrangement is a political question the petition does not fully resolve.

What this means for buyers and investors

For first-home buyers targeting new builds, the proposal's most direct effect would be to narrow the price gap between new and established property. A 10% reduction in the cost of building a new house would make new supply more price-competitive in outer-ring growth corridors and regional areas, where new construction accounts for the largest share of available stock.

For property investors, the landscape has shifted significantly. The legislation now heading to royal assent makes new builds specifically more attractive than established property: negative gearing remains available for new construction while being abolished for existing homes under future purchases. A GST removal would layer a further cost advantage on top.

For developers and builders, particularly those working on medium-density and affordable projects, a reduction in GST exposure would improve feasibility on precisely the types of projects Australia's supply shortfall requires most. The petition's core claim is that more projects would proceed if the tax burden on new construction were reduced, generating the additional supply that demand-side reforms cannot.

For a buyer making a decision now: the legislation makes new builds more tax-advantaged for investors – negative gearing stays, the Capital Gains Tax discount applies, and depreciation is unchanged. If the GST petition succeeds, new construction becomes cheaper to buy as well. Whether you are purchasing to live in or to rent out, the policy settings are pointing toward new builds. The GST change is not law yet, and may never be.

Key Takeaways

• A parliamentary petition from SMATS Group is calling for the 10% GST to be scrapped on new residential construction, arguing it would cut building costs immediately and stimulate supply.
• The proposal gains new urgency following the Labor-Greens deal struck on 23 June 2026, which brings the negative gearing and Capital Gains Tax legislation to a Senate vote within a fortnight.
• Under the current tax system, new homes attract both GST and stamp duty. An established home at the same price attracts stamp duty only. The GST component adds an estimated $35,000 to $59,000 depending on the state.
• The Labor-Greens deal also includes a ban on future SMSF limited recourse borrowing for residential property, a concession to the Greens that has drawn criticism from the Property Investment Professionals of Australia.
• Industry modelling estimates the budget legislation will result in approximately 9,000 fewer new homes over four years and push rents up by $477 per year by 2029-30 on a $600-per-week rental.
• Building approvals fell 3.4% in April 2026 to 16,710, with the pipeline remaining well short of government housing targets.