Labor shrugs off tax-reform outcry with parliament move
Controversial changes to capital gains tax concessions and adverse treatments will be introduced to parliament despite warnings that they will worsen Australia’s productivity problem.
Proposals to rein in tax breaks for investors would be bundled into a single bill that Treasurer Jim Chalmers will introduce to the House on Thursday, along with a $250 annual tax credit for employees and a $1,000 standard tax credit.
The treasurer said the changes would help level the playing field for many young Australians who have been left out of the housing market by a system that taxes income earned from labor at a higher rate than income from investments.
While the majority of economists and business groups accept the need for tax reform and the changes are likely to pass with the support of the Greens, the government has reacted specifically to proposed changes to capital gains relief.
Rather than restricting the change to property and leaving the current 50 per cent deduction for gains from the sale of shares and businesses, Labor applied the new indexation regime across the board.
The government has acknowledged this creates a problem for startups with a low start-up capital base and has consulted with industry groups, including the Australian Chamber of Commerce and Industry, about possible changes.
The chamber’s chief executive, Andrew McKellar, called on the government to scrap the changes for businesses and restrict them to residences.
He warned that tax changes would lead to less business investment.
“This will be bad for productivity. This will be bad for competitiveness. It will be bad for the future growth of the Australian economy,” he said.
Capital gains exemptions are already available for small businesses with less than $2 billion in revenue.
But UNSW economics professor Richard Holden said this actually penalized successful businesses that paid no capital gains tax towards a relatively high tax rate due to rapid growth.
“What this basically says is that our tax system will identify the most dynamic, highest-productivity growth, highest employment, most successful small businesses that grow into big businesses, and cut tax on them,” he told AAP.
Shadow Chancellor of the Exchequer Tim Wilson accused the government of bringing small businesses “to its knees”.
“There are existing deductions, no one objects to that, but unless the treasurer’s goal is to keep small businesses small … these exemptions do not meet the needs of all small businesses in this country,” he said.
Dr Chalmers said the reason the changes were not limited to housing was because the government wanted to eliminate distortions in the tax system.
Asked why the government could not otherwise distort the system to encourage investors to buy shares at the expense of existing homes, he said “a fairer and more impartial treatment of capital gains would solve this problem”.
“Established housing has been overcompensated and other investments such as shares have been undercompensated,” he told reporters on Wednesday.
“Some people will be better off under the new regulations, depending on their circumstances.”
Australia’s Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national news channel and has been providing accurate, reliable and fast-paced news content to the media industry, government and corporate sector for 85 years. We inform Australia.
