The Barefoot Investor has thrown his support behind the Albanese government as it considers changes to the 50 per cent Capital Gains Tax discount.

Scott Pape branded the CGT discount a ‘boneheaded policy’ and argued it never should have existed, claiming it helped propel house prices to record highs and fuelled Australia’s obsession with property investment.

Under rules introduced by the Howard government in 1999, investors who hold an asset, including an investment property or shares, for more than 12 months only pay tax on half the profit when they sell.

Before that, capital gains were indexed to inflation, meaning investors were taxed on real gains rather than receiving an automatic 50 per cent discount.

Treasurer Jim Chalmers has flagged the May Budget could include major tax reform, with changes to the CGT discount now firmly in the spotlight to address concerns about intergenerational inequity and housing affordability.

Mr Pape believes the government may already be testing the waters.

‘There’s a good chance the Treasurer is floating this now to soften people up,’ he said.

‘Whether it actually happens in May will depend on how loud the backlash is over the next few weeks.

‘I’ve always thought the CGT discount was a bonehead policy. It pushed property prices higher.’

The renewed debate comes as new research shows Australians now need to earn around $200,000 a year to comfortably afford a typical house in most capital cities without falling into mortgage stress. 

Former Reserve Bank governor Bernie Fraser has backed winding back the capital gains tax discount for investment properties – but the idea has drawn opposition from former prime minister John Howard and ex-treasurer Peter Costello. 

Howard said this would not be tax reform. 

‘It would be yet another tax slug by the Albanese government which lazily leans on the [Australian Taxation Office] to provide extra revenue,’ he told the Australian Financial Review.

‘It would hurt the aspirational middle class.’

Mr Fraser said he had always opposed the 50 per cent discount on capital gains but was more open to a discount for other assets such as shares.

‘From day one, I’ve argued against the bloody thing,’ he said. 

‘Housing should primarily be for living in and to raise a family, rather than for wealthy investors.’ 

Mr Pape said if any changes to the CGT discount apply only to property, and not shares, owning an investment property would become significantly less attractive after Budget night.

‘Good news for first-home buyers. Bad news for property investors,’ he said.

However, he cautioned against making knee-jerk investment decisions based on mooted tax changes.

‘I don’t make investment decisions based on proposed tax changes,’ he said. 

‘But over the long run, Australian shares, with their tax-effective franking credits, are likely to deliver better income, stronger growth and far fewer hassles than being a landlord.

‘After all, shares don’t leak, break or ring you on a Sunday needing a plumber.’

A government source told The Australian Financial Review that possible changes to the tax break are being discussed for inclusion in the May budget.

Labor previously took plans to halve the CGT discount to 25 per cent to the 2016 and 2019 elections, but both campaigns ended in defeat.

Those losses prompted Anthony Albanese to rule out changes to CGT after becoming Labor leader.

A Greens-led Senate inquiry will examine the CGT discount over the coming month, with Senator Nick McKim describing it as Australia’s ‘most unfair tax break’.

‘The discount is a textbook example of a system tilted toward the ultra-wealthy,’ he said.

‘Right now, the system makes it easier to buy a fifth property than a first.

‘It rewards speculation over work and entrenches advantage for those who already own assets.’