By Matthew Cranston
The architect of a campaign against Labor’s failed 2019 franking credits policy and the Albanese government’s super tax, Geoff Wilson, has backed a reduction of the capital gains tax discount for existing housing, saying that any changes should be revenue neutral with incentives to be lifted for investments in Australian businesses.
As Jim Chalmers leaves the door open to scaling back the tax break, the founder of Wilson Asset Management has agreed to appear before a Senate Inquiry into CGT in Sydney later this month, where he will detail his views on the tax – which include an increase in the CGT discount for investments in Australian businesses.
Mr Wilson’s views are likely to unnerve the Coalition, which opposes any changes because of a high level of its voter base being property investors. He said any changes must be revenue neutral to the budget, not a cash grab, because government spending levels were already far too high.
“First and foremost, the government needs to address its excessive spending. Any tax system reform needs to be holistic not piecemeal,” Mr Wilson said.
“The current discussion around potential changes to CGT must be revenue neutral. The risk is the government uses these changes as another cash grab.”
He said any changes “need to address productivity and capital deepening” to benefit all Australians. “Any changes to the CGT discount needs to move capital from non-productive assets (property) to productive assets. This will need to be funded.
“One way of funding this is to reduce the discount for purchases of existing houses for investors towards 25 per cent and to increase the discount on investing in Australian operating businesses towards 75 per cent, while grandfathering current CGT discounts on all investments.
“It would be logical to keep the existing 50 per cent discount on new housing stock as a way of helping supply.”
The CGT discount was introduced by the Howard government in 1999 and applies to any asset held for at least 12 months. It replaced the Keating-era CGT which accounted for inflation over the life of the asset.
Greens economics spokesman Senator Nick McKim said he “welcomed Geoff to the conversation”, adding: “The capital gains tax discount is becoming ever more friendless.
“The only people now defending it are its Liberal architects and the property speculators who are making bank” he said.
As The Australian revealed in July last year, both sides of politics were actively looking at changes to capital gains tax on property.
In his book, Liberal MP Tim Wilson has argued that he preferred bigger income tax cuts for people who were not established in the housing market, rather than adjustments in the capital gains tax exemption.
Labor’s capital gains tax policy was defeated at the 2019 election, after it proposed scrapping negative gearing for new properties and halving the rate of capital gains tax exemption from 50 per cent to 25 per cent.
Liberals argued that the CGT was important for Liberal voters noting that at the 2019 federal election, 46 per cent of homeowners voted Liberal compared with 33 per cent of homeowners who voted Labor, while only 6 per cent of homeowners voted for the Greens. That data showed 57 per cent of investment property owners voted Liberal at the 2019 election, while only 27 per cent of them voted Labor.
Opposition Treasury spokesman Ted O’Brien has also argued against changes to the tax discount for investors.
On the Labor side of politics, Dr Chalmers advocated strongly for changes to CGT before he became Treasurer. In his second reader speech to the First Home Super Saver Tax Bill 2017 he chastised the then Liberal government for not considering such changes.
“What is even worse is that these bills show what the government are not prepared to do: they are not prepared to pull the most meaningful lever when it comes to dealing with housing affordability, and that is dealing with negative gearing and the capital gains tax concessions. They refuse to pull the lever,” Dr Chalmers said.
“They will not do anything meaningful about negative gearing and capital gains and, as a consequence, they will not do anything meaningful about housing affordability in this country, particularly for young people.”
The Treasury late last year estimated the top 1 per cent of taxpayers received 54 per cent of the benefit of the CGT discount.
Parliamentary Budget Office analysis published last week suggested the figure was higher at around 59 per cent.
The Greens have received dozens of submissions on the CGT for their inquiry.
The Labor-aligned McKell Institute said the current 50 per cent discount on CGT for new units should be increased, while investors who purchase an existing detached house should face a reduced discount – which could help add another 130,000 homes before 2030.
Analysis by The Australian shows its removal would hit people on the verge of retirement hardest and could reap about $10bn in revenue for Dr Chalmers’ budget every year.
There is general support among economists, unions and independents to wind back the 50 per cent discount for existing housing.
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