Calls have been made for the capital gains tax exemption to be removed from family homes that are sold for more than $2 million.

According to the Australian Financial Review, the Australia Institute think-tank will today release a report showing that low income households receive little benefit from the current CGT exemption system and that applying CGT to family homes worth more than $2 million would boost the federal budget by more than $12 billion over the next four years.

The Australia Institute estimates the current CGT exemption is worth $46 billion in 2015-16 and is forecast to be worth $189 billion by 2020.

Australia Institute executive director Ben Oquist told the AFR that along with applying CGT to multi-million dollar family homes, the current 50% CGT discount on the sale of homes held for longer than 12 months also needs to be looked at.

“While super tax concessions are often talked about, it's clear capital gains tax needs reform,” Orquist told the AFR.

“The discount and exemption are costing the budget tens of billions of dollars and while many other areas of tax reform would require compensation for the less well off, such as raising the GST, limiting or reducing the discount or exemption would affect only the very wealthy, be good for the economy and potentially be a multi-billion-dollar budget boost,” he said.

According to the Australia Institute, current CGT arrangements are costing the government more than defence, education or Medicare and their proposed changes would also make housing more affordable.

“Reducing the concession is likely to have a positive impact by reducing distortions in the economy," the institute said, according to the AFR.

“At present the exemption encourages over capitalisation in main residences since any increase in their value is tax free. This has the effect of pushing up the value of housing and therefore making that housing less affordable.”