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Labor and the Coalition have announced competing measures to provide tax deductions for cost-of-living relief and first home buyers.
Major parties miss the mark with tax sweetener measures
14 April 2025
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11 minute read
The Albanese government has pledged to introduce a $1,000 instant tax deduction from 2026–27 if re-elected, as well as access to a 5 per cent deposit for all first home buyers.
The government’s commitment to provide relief for taxpayers and first home buyers was rivalled by the Liberals’ announcement to also deliver a cost-of-living tax offset to more than 10 million taxpayers, and a tax deduction on mortgage interest payments for newly built homes.
Mixed feedback was received on the announcements from both the Australian community and professional bodies, with some stating that the pledged measures were “better politics than they were economics”.
Labor estimated that the average amount of annual tax relief for those who benefit would be $205. Australians earning between $45,001 and $135,000 could get a benefit of up to $320.
Combining this latest measure with Labor's previously announced tax cuts would see the average full-time income earner on $103,000 receive $2,790.
The Albanese government said it would also invest $10 billion to build up to 100,000 homes to sell to first home buyers only.
The Coalition’s policies would see eligible Australians earning up to $144,000 receive up to $1,300 in tax relief when they lodge their tax return for the upcoming financial year.
There would also be a boost to the Home Guarantee Scheme and a tax deduction on interest payments for the first five years of a mortgage.
Richard Holden, chief economist at CA ANZ, said the housing and tax policy announcements from the Coalition and Labor had “clear weaknesses”.
“The Coalition’s unprecedented mortgage interest tax deduction is costly to the budget, arbitrary in terms of who it helps, creates financial stability risks, and is hard to roll back,” Holden said.
“The Labor party’s ‘5 per cent deposit’ policy raises many questions. Since the government is essentially providing mortgage insurance for low-deposit purchasers, what is the true cost? What happens if a buyer defaults? How are commercial banks treating these loans? Much more details need to be provided.”
“Neither party has offered a policy which seriously boosts housing supply. They’ve provided more demand-side subsidies that tend to make housing affordability worse rather than better.”
In terms of cost-of-living relief, Labor said its tax reform would allow taxpayers to claim a $1,000 instant tax deduction instead of claiming individual work-related expenses.
According to the Albanese government, the deduction would benefit 5.7 million taxpayers who claimed less than $1,000 in deductions and would no longer require them to collect receipts for deductions less than $1,000.
Without the need to keep receipts, the Labor government estimated a huge decrease in the need and cost of professional tax advice.
It was also added that around 88 per cent of those who would benefit would have a taxable income of less than $135,000 in 2026–27.
The Coalition’s cost-of-living tax relief was estimated to benefit around 85 per cent of taxpayers, and roughly half of all taxpayers would receive the maximum offset of $1,200.
Chief executive of CA ANZ, Ainslie van Onselen, said the accounting body wants to see the major political parties commit to meaningful discussion about the Australian taxation system.
“As we have called out in numerous submissions, the time has well and truly come for wider discussion about Australia’s tax system,” she said.
“Our next federal government should announce a roadmap of how Australia will achieve meaningful tax reform. This needs to be the focus of tax discussions going forward.”
This sentiment was echoed by Nitin Saby, principal at William Buck, who said allowing taxpayers to “tick a box” for a $1,000 deduction regardless of incurred expenses and no evidentiary burden shifted the deduction from being based on fact to being based on entitlement, which was “a big leap”.
“It might work as an administrative simplification for low-claim taxpayers, but it definitely flies in the face of established tax principles, especially substantiation and nexus to income,” Saby said.
“Without strict boundaries, it risks undermining integrity, encouraging over-claiming, and breaching horizontal equity between taxpayers.”
Like CA ANZ, CPA Australia also expressed disagreement with Labor’s proposed introduction of the $1,000 instant tax deduction from 2026–27.
Jenny Wong, CPA Australia tax lead, said the accounting body would not support the idea and rejected claims that it would result in reduced need for professional tax agents.
“Allowing taxpayers to choose to claim a $1,000 instant tax deduction instead of claiming individual work-related expenses may save some workers a bit of time - but could mean they miss out on the full refund they are entitled to,” Wong said.
“Further, previous modelling has shown that a standard deduction would cost the government and taxpayers much more than it brings in revenue. This makes it not only inefficient but also provides tax breaks to those who don’t have legitimate work-related expenses.”
Wong added that CPA reiterated advice to taxpayers that it was crucial to keep records and provide evidence of work-related expenses to lodge complete claims.
“The proposition that a standard deduction will lead to a decrease in the use of tax agents seems to have no basis in reality. The Australian tax system remains overly complex, and those who have previously relied on the professional advice of tax agents will continue to do so.”
Though the announced tax deductions were not supported by the accounting and tax sector, the building and housing community welcomed the deductions for first home buyers, as it would enable more opportunities for those looking to buy a home.
Labor revealed tha,t along with the guaranteed 5 per cent portion of a first home buyer’s home loan, they would also not pay lenders mortgage insurance (LMI).
The Coalition said first home buyers would be allowed to claim a tax deduction on mortgage interest payments for newly built homes and boost the Home Guarantee Scheme to “restore the dream of home ownership.”
Master Builders voiced its support for the Coalition’s proposal and applauded the announcement, which would allow first home buyers to deduct up to $11,000 a year in interest repayments for five years when building a new home.
Chief executive Denita Wawn said the policy recognised the important role the residential building sector played in Australia’s housing needs and driving economic growth; however, there needed to be further reform to tackle the constraints that drove up construction costs.
“This is a positive and practical long-term incentive that encourages more Australians to build their first home and supports market-driven construction activity,” Wawn said.
“Helping first home buyers enter the market by supporting new builds and increasing housing supply is exactly the kind of stimulus we need to keep the pipeline of new housing strong. Construction costs have increased by more than 40 per cent over the past five years, and much of that pressure comes from lack of productivity and planning bottlenecks.”
“If we’re going to make housing more affordable and accessible, we need serious action to improve planning systems, streamline approvals, and lift productivity in the construction sector.”
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