Governments across all levels are spending at record levels …
That record spending was justified during Covid because it stopped the economy from plunging into a Depression.
The problem is that this level of spending has continued even as the economy has returned to normal. As a result, inflation has surged again and interest rates have been raised, adding further pressure during an already painful cost-of-living crisis.
While average Australians were asked to tighten their belts to help fight inflation, those efforts and sacrifices were undermined by governments loosening theirs. Now Australians are being penalised, paying more on their mortgages and loans as a consequence.
Making the situation worse
What worries me is that instead of cutting spending, governments are looking at ways to increase tax revenue to fund that higher spending. And some of the suggestions are just crazy and don’t take into account the ripple effect.
One of the drivers of inflation is building costs and rents. We’re in the middle of a housing supply crisis where not enough houses are being built, which is pushing up values and rents. Housing in Australia is now among the least affordable in the world — and rental vacancy rates are extremely tight.
So, what does the Federal Government do to solve this problem? They propose to reduce capital gains tax concessions to make it less appealing to be a property investor.
Remember, these property investors have every right to sell their properties and invest elsewhere – but the rate of investor exits is increasing. According to recent survey data, a record number of property investors sold at least one investment property in the past year, with many saying they would stop investing entirely if negative gearing or capital gains tax concessions were reduced.
Not good for renters
Landlords are often blamed for rental pressures, but shrinking investor participation worsens the core issue: supply. When property investors sell up, there are fewer homes available for rent, tightening conditions further. Across Australia’s capital cities, vacancy rates are well below what’s needed for a healthy rental market, meaning tenants have fewer choices and landlords can command higher rents.
The Housing Industry Association (HIA) has urged the Federal Government to reset housing policy in the 2026–27 Budget, warning that the shortage has become a structural economic challenge. The HIA recommends wide-ranging reforms across taxation, planning, infrastructure and regulation to help deliver more homes and ease both price and rent pressures.
Housing is already one of the most heavily taxed sectors. Further tax changes – including to negative gearing or capital gains tax – would undermine investment, reduce feasibility and worsen affordability.
Rather than discouraging the investors who supply rental homes, we should be looking for policies that increase overall housing and promote affordability
Government spending should be the focus
It’s also hard to cop higher interest rates when it feels like governments aren’t doing enough to help with rising costs. If households have to cut back to deal with inflation, surely government should be doing the same.
The Reserve Bank of Australia really only has one main lever – interest rates – and when it pulls that lever, it’s mortgage holders and small businesses who feel it first. Governments, on the other hand, have far more options. They can rein in spending, prioritise essential projects, reduce waste, and focus on policies that actually boost productivity.
Instead, when governments keep borrowing and spending during inflationary times, it adds pressure to the system and makes the RBA’s job harder. That means rates stay higher for longer – and ordinary Australians pay the price.
If households are expected to live within their means, it’s not unreasonable to expect the same discipline from government.
