For two decades Australia has quietly drifted into a tax system that hardwires advantages for older asset holders while steadily eroding the rewards of work for younger Australians.

The 50 per cent CGT discount, introduced by the Howard government in 1999, sits at the heart of that settlement. It was never designed to turbocharge housing speculation. Yet combined with negative gearing, it has done exactly that, rewarding those already in the market and crowding out those trying to get in.

The brutal arithmetic cannot be ignored. Cotality’s Housing Affordability Report shows the Australian dwelling value-to-income ratio at around 8.2 times median household income – with houses alone now about 8.9 times income – up sharply from five years earlier and sitting near record highs.

ABS census data shows that home ownership among 25-34-year-olds has collapsed from 61 per cent in 1981 to 43 per cent in 2021. Australians are now entering their 30s with lower rates of home ownership than any cohort since Federation, despite being better educated, working longer hours and carrying far higher levels of debt. This is a structural denial of access to assets, driven by prices racing far ahead of wages.

Crucially, the damage does not simply wash out with age. Ownership rates do rise among over-35s but no longer catch up in the way they once did. Australians aged 35-44 remain less likely to own a home than previous generations at the same life stage, while ownership among those 55 and over remains overwhelmingly high – reflecting cohorts who entered the market when housing was cheap, credit was manageable and wages still did the heavy lifting.

This is not about demonising older Australians or property investors. Most played by the rules as they were written. But rules can be wrong and, over time, wrong rules corrode the social contract. Why should younger Australians shoulder higher personal income tax to fund older, property-owning generations’ health and aged care, but be locked out of home ownership?

Labor understands this instinctively. Treasurer Jim Chalmers has repeatedly framed tax reform through an intergenerational lens. He knows the system leans too heavily on personal income tax and too lightly on accumulated wealth. That is why reforming the CGT discount matters, even if its short-term impact on house prices is modest.

Reducing the discount from 50 per cent to something closer to international norms – or indexing it to inflation – would be less about engineering an immediate market correction than about resetting expectations.

Most importantly, it would send a political signal: this government understands how inflation, housing and tax policy interact, and is prepared to unwind a tax setting that has quietly become generational welfare.For younger voters without the bank of mum and dad, that matters. Not because it fixes everything, but because it shows leaders hear the grievance and are prepared to act.

Government must stop tiptoeing. This is second-term terrain. Labor should move carefully but decisively. Grandfathering existing investments, phasing changes in over time, and limiting reform to housing rather than shares would blunt political risk while preserving reformist integrity.

Yet this debate is not only a test for Labor. It is an existential challenge for the Liberal Party. The Liberals’ reflexive opposition to any CGT change suggests a party still in thrall to the interests of asset-rich Boomers, unable to grasp how profoundly the electoral landscape has shifted.

Home ownership was once the great conservative social glue. Today, a growing class of insecure renters has no material stake in a system the Liberals are defending. If younger Australians have nothing to conserve, what purpose does conservative politics serve?

If the Liberals oppose even modest reform of the CGT discount, they will be making a choice. They will be choosing investors over first-home buyers, incumbents over entrants, and short-term base management over long-term renewal. It is a recipe for irrelevance tomorrow, with an electorate dominated by Millennials plus Gen Z and Alpha.

There is a conservative path back to relevance: practical tax reform that expands home ownership, rather than chasing One Nation by pretending immigration cuts can fix a housing crisis driven by prices and incentives.

Broad-based home ownership underpinned the stability of Australia’s post-war settlement and Robert Menzies’ political dominance during the golden age of social democracy. And it is good for the budget: the CGT discount on property is the single largest tax expenditure item, draining around $32bn a year from the commonwealth.

None of this denies the importance of supply. Planning reform, infrastructure investment and faster approvals remain essential, along with innovative solutions. But supply alone cannot fix a demand problem supercharged by tax incentives.

Housing inequity now underpins almost every grievance in Australian politics – from generational resentment to declining trust in institutions. Governments that refuse to touch the tax settings that helped create this mess are not being prudent, but cowardly.

Labor has an opportunity to show governing is about more than managing inherited arrangements. And the Liberals have an opportunity – is new leader Angus Taylor up to it? – to demonstrate to younger Australians they are listening.

CGT reform will not solve everything. But it will tell us a great deal about who is prepared to confront the housing crisis, who prefers denial, and who wants to govern in the future.