Treasurer promises to 'fix' property tax oversight, but won't say how exactly

The Treasurer is promising to "fix" an unintended consequence of the government's overhaul of property tax breaks to protect widows and divorcees — but he has refused to say exactly how.

The issue emerged last week during debate on Labor's changes to negative gearing and the capital gains tax discount.

Independent senator David Pocock raised concerns that existing assets — which should be exempt from the changes — could lose that favourable treatment through death or divorce, because it would be considered a change of ownership.

The Coalition, which dubbed the loophole a "widows tax", asked whether the government knew of the implications, which would impact an estimated 680,000 properties, before budget night.

While the legislation passed, the government gave an assurance that it would resolve the issue and ensure existing assets remain exempt from the tax changes, if they changed hands through death or divorce before the laws come into force in July next year.

Treasurer Jim Chalmers said the issue would be dealt with in a second bill later this year, but he would not say exactly how the government planned to address it.

"That's because it'll be made clear in the legislation, I don't think that's a particularly contentious way to say it," Mr Chalmers told ABC's Insiders.

"We will address it. If you want to use a different word, we will fix it and we'll make clear the way that we will fix it in the legislation that follows."

He said it was not unusual to make amendments, with carve outs expected to be made for small businesses also due to be legislated later this year.

"What we do when issues are raised with us, we work through them in a pragmatic way, in a sensible way," Mr Chalmers said.

Fending off UK Labour woes

Responding to the ousting of UK Labour Prime Minister Sir Keir Starmer last week, Mr Chalmers said incumbent governments, worldwide, were under pressure and grappling with an "accelerated pace of change" putting pressure on leaders.

It came amid the rise of the populist right-wing party Reform UK on the back of cost-of-living pressures, concerns about immigration and demographic shifts, following a trend towards populist parties globally.

The interest in One Nation reflects that international change and the government has been happy to lump them in with the Liberals and Nationals as one of the "three right wing parties".

Mr Chalmers said "it was a difficult time around the world to be an incumbent government" because opponents could easily take advantage of community discontent, so it was worth taking a risk and making changes.

"You've got two choices: to try to capitalise on it, as the three right wing parties are trying to do in Australia, or try to address it, as we are doing," he said.

"Sometimes when you are addressing this broken status quo, in our case in the housing market and the tax system, it's hotly contested, it's contentious.

"It involves some level of political risk but it's worth it because these are legitimate concerns that people have."

While the government is hoping some of the heat from the debate will dissipate now the changes have passed parliament, Shadow Education Minister Julian Leeser said the Coalition "would not let up" on the government.

Mr Leeser said the changes to negative gearing and capital gains taxes were unnecessary and could end up negatively impacting housing supply.

"If you tax something, you have less of it, so if you want Australia to be a more innovative society you don't slug people who are engaged in innovation," Mr Leeser told Sky News.

"If you want Australia to build more houses, you don't put these taxes on."

The budget states the government's tax changes would reduce dwelling construction by 35,000 homes in the next decade, but adds that figure is expected to be offset by 65,000 additional homes due to the the government's housing supply measures.

Mr Leeser said the reduction in dwelling construction would harm younger Australians.

"That's a terrible thing for young Australians trying to get into new homes," he said.

Meanwhile, Shadow Treasurer Tim Wilson said Mr Chalmers' comments were non-committal.

"Jim Chalmers has paved the way for yet another broken promise this morning, refusing to confirm that his government will repeal its widows tax," Mr Wilson said in a statement.

"Jim Chalmers' budget started unravelling before he delivered it. At Thursday breakfast ministers were defending the widows tax, but by lunchtime the government backtracked, and by Sunday morning coffee they're hedging to betray Australians again."