But while it's set to boost intergenerational equity and budget revenue, experts caution the effect on housing affordability will be relatively minor.
A Greens-led parliamentary inquiry released Tuesday found the 50 per cent capital gains tax discount skewed the housing market towards investors at the expense of owner-occupiers and unequally benefited wealthier Australians.
Labor senators Ellie Whiteaker and Richard Dowling, who signed off on the report, added that younger Australians increasingly faced different economic circumstances to previous generations.
Any tax reform should be guided by the principles agreed to at Treasurer Jim Chalmers' economic reform roundtable of 2025, including making the tax system fairer for young people, they said.
It's the clearest indication yet by the government that changes to the capital gains tax discount will be included in the upcoming budget.
Treasury is understood to be working on a number of options, including reducing the concession to 33 per cent, as well as examining scaling back the negative gearing tax break for property investors.
Grattan Institute economist Brendan Coates told the inquiry reducing the capital gains discount would be positive for budget sustainability and economic growth.
"As a measure to boost to improve affordability, it falls a long way behind measures around supply," he said.
Domain chief economist Nicola Powell said negative gearing and the capital gains tax had not been the main drivers of price growth.
"There's no silver bullet, but broader reforms like moving from stamp duty to land tax, reviewing policies that discourage efficient use of housing, and investing in infrastructure to unlock supply could make a real difference," she said.
Commonwealth Bank research found cutting the discount to 25 per cent would result in prices settling about four per cent lower than the baseline over several years - less than the growth many Australian capitals saw in a single quarter in 2025.
Rents would be about 0.2 per cent higher than the baseline over a decade.
Dr Chalmers said there had been no changes to government policy but left the door open for the budget.
"I've tried to be upfront with your listeners and with others in saying that we are working up some options," he told ABC Radio on Wednesday.
"I'm not going to come at what those options look like, but there is certainly appetite for more tax reform if we can land it."
The inquiry's chair, Greens Senator Nick McKim, said he was pleased Labor was making it clear reforming "the most unfair tax break on the books" was on the table.
"This is a historic opportunity for government, and we hope they take it," he told ABC Radio.
Maiy Azize, a spokesperson for social housing advocacy group Everybody's Home, called on the government to invest extra revenue from winding back the capital gains discount into social housing.
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