Macquarie sees budget tax changes as headwind for Australian banks By Investing.com

Macquarie warned that proposed Australian budget changes to the capital gains tax discount and negative gearing could pressure banks by weakening housing demand and slowing house price growth. The firm estimates a CGT discount cut could lower house prices by 1% to 2%, with additional downside from limits on rental loss deductions. Macquarie reiterated Underperform ratings on CBA, WBC, BEN, and BOQ, while flagging defensive names such as Atlas Arteria, APA Group, AGL, Telstra, and Coles for FY27 gross yields above 5%.

Analysis

The market is underestimating how quickly a tax-driven hit to property economics can leak into bank earnings through credit growth, collateral values, and investor sentiment rather than just housing transaction volumes. The first-order earnings risk is modest, but the second-order risk is that lower expected house price appreciation compresses investor demand for leveraged property exposure, which reduces mortgage book growth at the same time that competition for prime borrowers remains intense. That matters most for the expensive franchise banks, where valuation support depends on sustained balance-sheet growth and benign credit costs.

A bigger medium-term issue is that any shift away from property as the preferred after-tax asset class tends to reallocate household savings toward higher-yielding defensives, utilities, infrastructure, and consumer staples. That is not an immediate catalyst for equities broadly, but it can create a relative-performance regime change over 6-18 months if superannuation flows and retail allocations start favoring cash-flow yield over leveraged asset exposure. In that setup, low-beta income names can outperform even if the index is flat, because the marginal buyer is not chasing growth, but preserving after-tax income.

The key contrarian point is that the tax proposal may be less about breaking housing than about changing the marginal buyer. If negative gearing becomes constrained, investors with thin equity buffers are the first to exit, which can improve the market’s quality over time but still pressure transaction volumes and mortgage origination in the next 2-4 quarters. That creates a window where bank stocks can look deceptively cheap on headline P/E while still facing multiple compression from slower book growth and lower terminal housing optimism.

Key Decisions for Investors

• Underweight CBA and WBC for the next 3-6 months; use any pre-budget bounce to add shorts or buy puts. Risk/reward favors downside if the market starts pricing slower mortgage growth and weaker collateral support, with limited upside unless the policy signal reverses.
• Relative-value pair: long APA / short CBA or WBC over 6-12 months. If the market rotates toward income and defensive yield, APA’s cash-yield profile should benefit while the banks absorb valuation pressure from housing uncertainty.
• Long defensive yield basket vs. banks: ALX, TLS, COL on a 6-9 month horizon. This is a cleaner expression of the after-tax yield trade than trying to catch a macro call on house prices; downside is more muted if policy headlines soften.
• Avoid buying housing-cycle beta until the budget is clarified; if CGT/negative gearing changes are less aggressive than feared, use that as a catalyst to cover bank shorts quickly. The trade is headline-sensitive, so position sizing should be modest and options preferred.
• For more convex exposure, consider a short-dated put spread on BEN or BOQ into the budget window. These names have higher sensitivity to investor mortgage demand and regional housing momentum, so they offer better downside asymmetry than the large majors.