The Albanese government is expected to unveil a major reform of the capital gains tax, targeting property and share investors in the name of “intergenerational fairness.”
Reports in The Weekend Australian on Saturday show the Albanese government is set to replace the 50 per cent capital gains discount with a new inflation indexation tax model on all new investments.
Existing investors could be spared initial tax pain, with the proposal likely to be grandfathered.
Under the current system, Australians can reduce their capital gains tax paid on any assets by 50 per cent by holding it for at least 12 months.
This means only half of the profit is added to a taxpayer’s assessable income to be taxed at their marginal rate.
The aim of capital gains tax discount is to simplify the tax system, encourage long-term investment and partially compensate for inflation.
While this is a step back from a previously floated idea of completely scrapping CGT exemptions purely on properties, experts warn it could hurt the very people it is supposed to protect.
Ahead of the May 12 budget, the Housing Industry Association, Master Builders Australia, the Property Council of Australia and REIA wrote an open letter to the parliament warning against any capital gains changes.
According to the industry group it will simply reduce supply and increase prices on existing dwellings.
“In this context, any increase on capital gains tax to housing and/or a cap on negative gearing, risks material withdrawal from property investment when we need more investment in housing, not less,” the group said.
They say investors currently build four in every 10 homes created and more than 50 per cent of all new apartments.
“If the federal budget is used to actively drive investors into shares rather than financially supporting new housing projects in our cities and towns then Australia’s national housing crisis will deepen,” they say.
In recent weeks both Anthony Albanese and Treasurer Jim Chalmers have spoken of reform to create a more resilient budget that helps reduce the taxation burden on younger people.
“We have been really upfront for some time now in saying that we do think that there is intergenerational unfairness in the tax system and in the housing market,” Mr Chalmers told reporters recently.
“I think the housing market is where some of those intergenerational issues are most obvious.”
Shadow treasurer Tim Wilson has slammed the reported CGT changes, calling it an “aspiration tax” and accusing the Prime Minister and Mr Chalmers of being at war.
“The Albanese government is launching an assault on aspiration though their new tax on self-starters according to leaks from deep inside their budget inner sanctum”, Mr Wilson said in a statement
“Such a significant leak out of the budget process says even Labor MPs know how toxic the Prime Minister’s aspiration tax would be to those who save and work hard to get ahead.
“We know there’s deep division between the Prime Minister and the Treasurer on budget matters, and this leak says one of them is trying to kill the other’s proposal”.”
Meanwhile, e61 senior research manager Matt Nolan believes the model reportedly being considered by the Albanese government is a fairer way to compensate households for the impacts on inflation.
“By taking into account the unique circumstances of the investor, indexation is a fairer and less distortionary way of taxing capital gains,” he wrote.
“This would be a significant reform, and even more so if it becomes the first step toward taxing capital income consistently with other income over time.”