Treasurer Jim Chalmers is set to scrap negative gearing and replace the 50 per cent capital gains tax discount with indexation in the upcoming federal budget.
The Commonwealth Bank economics team indicated the change in its federal budget preview on Wednesday.
'Major changes to CGT and negative gearing appear locked in,' CBA chief economist Luke Yeaman said, the Daily Telegraph reported.
'This will boost revenue but won't shift the dial on productivity or housing affordability. Boosting supply is still the key.'
The changes are expected to raise up to $30billion in additional revenue.
Capital gains tax (CGT) is a tax applied to the profit made from selling properties and is currently subject to a 50 per cent discount.
Indexation would replace the discount and see the original price of a property adjusted for inflation, then tax charged on the sale profit compared to the inflated price.
Negative gearing allows investment property owners to claim the cost of running the property, like loan interest and rates, back on their taxes, thus encouraging the purchase of investment properties.
Treasurer Jim Chalmers (above) is expected to announce two blows to investment property owners in the upcoming federal budget
Prime Minister Anthony Albanese (above) previously claimed his government had 'no plans' to reduce property investment incentives
About 800,000 Australians tax payers claim negative gearing on one property, compared to about 275,000 who claim it on two or more properties.
Prime Minister Anthony Albanese previously claimed his government had 'no plans' to reduce property investment incentives.
The two changes alone are expected to raise about $5billion a year in revenue.
'We expect a package that includes replacement of the CGT discount with indexation for all assets with grandfathering and the abolition of negative gearing for all new investments to generate revenue of circa $2billion over the first four years and $25-30billion over 10 years,' Mr Yeaman said.
While the changes are likely to be sold under 'intergenerational fairness' improvements, Mr Yeaman claimed it was unlikely they would actually improve housing affordability.
Instead, he and co-author of the budget preview, Harry Ottley, called for 'concrete steps' to be taken on Australia's corporate tax system.
'That would make it a really successful budget but that's the piece have the least conviction on,' Mr Ottley said.