A parliamentary inquiry report into the capital gains discount, released on Tuesday, found the benefits of the tax deductions were unequally distributed and distorted the availability of housing stock across Australia.
Introduced by the Howard government in 1999, the measure allows for a 50 per cent discount on the tax of investment properties sold after being owned for one year.
Labor has been urged to make changes to the tax discount to boost intergenerational fairness, and is tipped to reduce the percentage of it in May's federal budget.
"There is evidence that the concessions provided by the capital gains tax discount, in combination with negative gearing, have skewed the ownership of housing away from owner-occupiers and towards investors," the report said.
"The benefits of the capital gains tax discount are also unequally distributed, with implications for income and wealth inequality and intergenerational inequality."
The inquiry was chaired by Greens senator Nick McKim, who recommended for the tax discount to be scrapped entirely for investment properties.
He said the report was an historic opportunity to enact meaningful change for young Australians looking to get into the housing market
"The only limits are Labor's ambition and courage," he said.
"The combination of negative gearing and the capital gains tax discount has driven rampant property speculation and inflated house prices over the last 26 years."
Rather than grandfather in the tax discount, the Greens have recommended it be phased out as part of reforms.
Treasurer Jim Chalmers said ahead of the report's release some of the findings from political parties would be predictable.
"No doubt the committee's made a range of findings. We'll consider those in the usual way as part of our broader work," he told reporters in Canberra.
"We try and engage with these committees in the most respectful way that we can. But these decisions ultimately get taken by the cabinet, not by parliamentary committees."
In a dissenting report, the coalition said supply was the issue most affecting entry to the property market and said the tax discount was working as intended.
"Abolition of the capital gains tax discount would discourage new construction, undermine supply, and so push housing prices up. It is simple economics," Liberal senator Andrew Bragg said.
"The real agenda appears to be the attempted replacement of mum-and-dad investors with institutional landlords which is frankly un-Australian."
