Treasurer Jim Chalmers is plotting a Budget night tax sting on property investors with older homes, with the Prime Minister backing a plan to give bigger capital gains tax (CGT) breaks to taxpayers who bankroll new apartments and townhouses.

At the same time, the government is expected to slash capital gains tax concessions on older properties, with Labor aiming to funnel investor money away from established housing and into projects that add to the supply of homes.

Senior government insiders told the Daily Mail the Treasurer wants the change locked into the May 12 budget and has already won Anthony Albanese's support, with ministers and advisers now mulling over the final details of how hard Labor should go.

At the centre of the push is a 2025 McKell Institute report by UNSW Professor Richard Holden and the institute's CEO Edward Cavanough, the Mail can reveal.

The document is being used inside government as the template for a capital gains tax shake-up.

Under the model being worked through in Canberra, investors buying into newly built apartments and townhouses would get a larger tax break when they sell, while those piling into older housing would get a smaller tax concession.

The formula being examined would lift the current 50 per cent capital gains tax discount to 70 per cent for new attached dwellings such as apartments and townhouses. 

It would slash it to 35 per cent for existing dwellings, and leave it unchanged at 50 per cent for new houses.

What would make the reform a big surprise on budget night is that - after a years-long debate focused on cutting property tax concessions - some investors could actually end up with a better break than they get now, if they buy new apartments and townhouses. 

But that only applies if Labor adopts the institute's model in full. 

If it cherry-picks the parts that cut tax concessions, while dumping the more generous treatment for new builds, the government will be selling a tax hit, not a housing incentive.

Existing investments would be grandfathered, meaning current owners would not be hit retrospectively. 

Negative gearing would remain untouched, according to the McKell paper. If adopted, that would allow Labor to argue that existing investors are protected, even as the rules are changed for future purchases, minimising the political fallout from the change.

Negative gearing changes still being considered 

The numbers in the report are eye-catching. 

The McKell plan claims the CGT change could lift housing supply by up to 1.2 per cent and help deliver as many as 130,000 extra homes by 2030, while remaining broadly revenue-neutral over the first five years, if the government sticks to the report's parameters.

That gives Labor an obvious political shield, allowing it to frame the change as a housing reform rather than a tax raid. But that defence only holds if the government sticks closely to the original design.

The further Labor moves beyond the institute's model in search of a modest budget gain, the easier it becomes for critics to brand the measure a tax grab dressed up as supply reform.

The move would hand Labor a huge housing headline without dragging it back into a full-scale negative gearing war. 

But the Daily Mail understands changes to negative gearing are still under active consideration.

Ministers are also weighing up how closely to stick to the McKell model if they want the package to do more than reshape investor behaviour and instead deliver at least a modest gain to the budget bottom line.

Rather than detonating the political grenade that blew up in Labor's face under Bill Shorten in 2019, Chalmers is carving out a narrower, pro-supply approach. 

The McKell blueprint gives Labor a way to edge back towards areas that look uncomfortably similar to Bill Shorten's 2019 tax policy, without appearing to drag the old policy corpse out of storage. 

Using a think tank report as the starting point also gives ministers a layer of political cover if they decide to move, with the Treasurer expected to refer to the institute's study during his post-budget sales pitch.

PVO's view: Clever bid to avoid the ghost of Bill Shorten 

Bill Shorten's plan to wind back property tax concessions was turned into a political bloodbath at the 2019 election, including by the now Opposition Treasury spokesman Tim Wilson, who campaigned hard as a backbencher at the time against Labor's proposed changes to franking credits.

Using an outside report to launch the budget changes lets the government spin the move as a fresh housing fix, rather than a rerun of the policy voters killed off seven years ago. 

What makes this politically different from Labor's failed 2019 tax agenda is that the government now has a more convincing rationale than simply winding back investor concessions. 

Housing scarcity has given Chalmers and Albanese a cleaner argument: this is not about punishing investors, but about steering capital towards new supply. 

The risk for Labor is that if Treasury bureaucrats cannot demonstrate a clear supply dividend, the government will be accused of re-fighting an old ideological battle under a new housing banner.

The target of the new policy plans is the same broad problem that's been in play for years: tax settings that favour investors and help put upward pressure on the housing market, adding to the difficulty new home buyers face competing with property investors at auctions.

But the version being considered for the upcoming budget is more surgically targeted and dressed up as a supply-side measure, not simply a war on property investors.

The Treasurer's political staffers want Labor to stay close to the Holden-Cavanough model. 

However, Treasury is still crunching the numbers, and the PM's office is desperate to avoid spooking the property lobby and middle Australia. 

That leaves the final budget call on the specifics of expected capital gains tax changes resting on just how much political pain Albanese is prepared to risk in exchange for a housing reform headline.

If the plan goes ahead, the line to the market will be brutally simple: build new properties and get rewarded. 

Keep piling your money into older housing stock and get clipped with a higher tax rate. 

In effect, investors would be pushed towards backing construction rather than bidding up the price of homes already built.

While the property sector and the Opposition are expected to howl about such a reform, rents are soaring, younger buyers are shut out of the market and housing pressure is biting hard.

Chalmers is betting that voters are more likely to swallow a hit on existing home investors if the government can sell it as a push to get more new properties built to address surging demand that has outstripped current supply.

That calculation is now driving one of the most explosive fights inside government ahead of Budget night next month.