THE capital gains tax exemption for main residences should be scrapped for properties worth $2 million or more, The Australia Institute says.

In a new report released on Monday, the independent think-tank said the move would raise almost $12 billion in revenues over the next four years — more than half of which could come from the nation’s highest income earners.

It said the change would help the Prime Minister make good on his pledge that taxation reforms would be fair and comes after News Corp revealed a similar CGT concession given to some homeowners was responsible for lost revenues of nearly $24b over the past five years.

According to the report the main residence exemption — which excludes homeowners’ principal place of residence from CGT — cost the budget $46b last year and will result in a further $189b in lost revenues over the next four years.

“Each year the cost of the CGT exemption on the main residence costs the federal budget more than Defence, Education or Medicare,” the report said.

The report, based on NATSEM modelling, said Australia’s poorest households — the bottom 30 per cent — received “almost no benefit” from the tax break.

“Almost 90 per cent of the benefit goes to the top half of income earners while the bottom half only get 11 per cent,” it said.

“High income households (those in the top 20 per cent) get more than half of the benefit (55 per cent).”

“This policy change (would) impact on less than one per cent of home sales while still raising $11.8b over the next four years”, the report said.

media_camera Proposal a ‘big boost for the bottom line’ ... Australia Institute executive director Ben Oquist.

Australia Institute executive director Ben Oquist said capital gains tax concessions were responsible for lost revenue of nearly $200 billion over the forward estimates.

“It’s more than the entire spending on the aged pension; more than the government spends on Medicare,” he told the ABC.

“If you are considering genuine tax reform and if the budget is in strife it would seem nonsensical not to have a look at it.

“And unlike say raising the GST to 15 per cent, tackling the capital gains tax discount and its interaction with negative gearing is likely only to affect the most well off in society and yet give the budget bottom line a big boost.”

However, Housing Industry Australia senior economist Shane Garrett the exemption drove demand for new homes and scrapping concession would negatively impact the housing marking.

“The CGT exemption on the family home is one way to encourage demand for new homes and it’s also a way to encourage more new homes to be built,” he told the ABC.

“And in the context of supply shortages that are affecting parts of the market around Australia at the moment we think it would have very detrimental impacts from that point of view.”

Mr Garrett said the proposed $2 million threshold was too low.

“In Sydney for example the median house price at the moment is close to $1m so for a $2m situation that would affect some houses that would not be particularly at the extreme end of the (wealth) scale,” he said.

“There are many fairly standard houses in Sydney now that would be in that price bracket.”

Data from Core Logic shows there are 71 suburbs across the country with a media house sale price of $2m or more. Of these, 61 suburbs are in NSW.

media_camera Independent Senator Nick Xenophon. Picture: AAP Image/Mick Tsikas

Independent Senator Nick Xenaphon said he was open to considering “carefully calibrated” changes to CGT.

“Obviously any move to remove CGT exceptions to tinker with negative gearing needs to be done very carefully, very cautiously so that you don’t end up putting a massive wet blanket on the housing market around the country,” he said.

“The housing market in Sydney is very different from the housing market in Adelaide or Hobart for instance.

“I want to see some modelling on this. I know $2 million can get you a very nice place in SA, maybe not so luxurious in Sydney.

“I think we need to look at it and look at it on a region-by-region basis and market-by-market basis.”

But Minister for International Development and the Pacific Steve Ciobo has poured cold water on the proposal.

“Look, Ben Oquist, who is the CEO of The Australia Institute is a former chief of staff to Bob Brown,” he told Sky News.

“He’s regarded by the Greens as being a bit of a political hero for them.

“I don’t actually think a lot of what he has to say has much support in terms of economic theory.

“I certainly don’t believe it’s got any political support.

“I notice even the Labor Party, as desperate as they are for Greens support, even the Labor Party have walked away from this proposal.”

Mr Ciobo said the proposal would penalise the “one industry that is actually providing a strong period of growth”.

“The fact is people who are investing for property also provide property for renters,” he said.

“They might be purchasing properties and doing redevelopments and putting in place five or six or seven or eight strata titled apartments which of course add to Australia’s housing pool.

“At the end of the day there is no magic formula to this.”

media_camera Tax reform options ‘on the table’ ... Prime Minister Malcolm Turnbull. Picture: James Croucher

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison have previously said everything remained “on the table” when it came to tax reform, while Mr Turnbull has also pledged to keep any changes “fair”.

The report said the Federal Budget deficit — predicted to balloon to $37.4b this year — could not be improved through cost cutting alone.

“The government must also look to revenue measures if it wants to effectively reduce the budget deficit,” it said.

“If Mr Turnbull’s stated goal of fairness is to be achieved, the government’s next measurers should reduce the budget deficit in ways that don’t impact on low income households.”

Analysis of Treasury figures by News Corp last week found the 50 per cent capital gains tax concession given to property investors who hold a property for more than a year was expected to shave $23b from Federal Government coffers over the next three years.

Originally published as Family homes could lose tax exemption