Capital gains tax reform is necessary

Tax breaks on capital gains reveal a system that rewards wealth more than work, he writes Carl Rhodes.

It has been more than a quarter of a century since then-treasurer Peter Costello introduced a 50 per cent capital gains tax (CGT) cut on investment properties. All this time, talk of serious reform was conspicuously missing. So far.

By 2025, economic injustice had moved to the center of Australia’s political agenda. The cost of living crisis, housing unaffordability and growing intergenerational inequality have dominated public debate and shaped the Labor Government’s stance. Economic Reform Roundtable last August. Although no concrete policy changes have yet emerged from this process, it has offered significant authority to talk about tax reform.

The Australian Greens acted quickly. The Senate motion determined that: Select Committee on the Treatment of Capital Gains Tax Deductions. The committee’s number one priority is to investigate how the CGT cut has increased inequality and consider whether it deserves a future.

The Overton window is changing. The question is whether it will shift far enough to allow real change.

A $247 billion inequality engine

Parliamentary Budget Office analysis The resolution, commissioned by a Senate committee, has already shown that the CGT cut will drain $247 billion from the budget over the next decade.

Even more surprising, from next year almost 60 percent of this aid will flow to the richest 1 percent of earners. These are the people who need the tax cut the least.

The injustice is further compounded by the fact that: Australian Council of Social Service According to reports, Australia spends more on tax breaks for property investors than on social housing, homeless services and rental assistance combined.

Greens Senator Nick McKim in the name CGT discount “The most unfair tax mistake in the country”.

ACTU President, Michele O’Neil He defines it as follows:

“…a tax evasion scheme where the biggest benefits go to the richest one per cent of Australians.”

This reckoning is long overdue. Poverty is rising, concentration of wealth is accelerating and Australia is producing more billionaires every year. Without structural tax reform, economic inequality will continue to worsen.

The current CGT debate has become a turning point for the Labor government, which has historically viewed this area as a political no-go zone. However, as we approach the May budget, CGT reform is no longer completely ruled out.

Prime Minister Albanese rejected to rule it out and Chancellor of the Exchequer Jim Chalmers in question:

“…we will evaluate whether further steps can be taken on tax reform.”

The inequality crisis goes deeper than the CGT

If we are serious about tackling inequality, Australia needs to confront the fundamental fact that we tax income heavily and wealth lightly. The result is a system that continues to deepen economic inequality by rewarding those who already have assets and punishing those who seek to acquire them.

CGT relief is a visible expression of this imbalance, but it is only one element of the tax architecture designed to privilege unearned profits over earned income.

Real reform will go beyond reducing the CGT allowance and will include at least closing the loopholes that allow high-income earners to reclassify income as capital gains, and confronting the distorting role of negative gearing that continues to inflate asset prices and widen the wealth gap. Anything less leaves the structural drivers of inequality firmly in place.

Despite this, Labor remains committed to bold reforms. Both Prime Minister and Treasurer reigned Go out by tapping the negative gear.

Albanian last year insisted:

“…the only tax policy we implement is the policy we implemented in the election.”

Broader fiscal measures needed to address inequality have been introduced, including inheritance and property taxes. dismissed downright.

Momentum is building inside and outside parliament

Despite the timidity of Albanese’s centrist politics, change is still possible if there is public and political pressure. Chalmers has previously ruled out changes to the CGT discount and look where we are now as the budget draws closer.

The pressure for CGT reform did not originate from within the government. This came from a broader political environment.

The Australian Greens, long-time advocates of tax reform, have launched a Senate inquiry into the CGT cut. The trade union movement also played an important role, supporting reforms and participating in public campaigns that helped shift the national debate.

Think tanks like these Grattan Institute, Australian Institute And Per Person They also played important roles in changing the policy debate through sustained analysis.

It’s time to reward work, not wealth

This is the time for the government to decide whether it wants to fix the limits of inequality or reduce it in a meaningful way. CGT reform is necessary, but it is only one piece of a much bigger jigsaw.

Australia’s inequality crisis stems largely from a privileged tax system wealth rather than work. Negative guidance, retirement privileges, trust structures and the complete absence of inheritance taxes all reinforce advantage and accelerate the concentration of wealth.

Without confronting these deeper structural environments, CGT reform alone will remain barely surface-level. Decisions made now will shape Australia’s economic justice for a generation.

The government, which has a parliamentary majority, has the power to make decisive changes. The Senate investigation opened the door. Public sentiment has changed. The evidence is overwhelming. What remains is the courage to act.

Carl Rhodes is Professor of Business and Society at the University of Technology Sydney. Wrote several books On the relationship between liberal democracy and contemporary capitalism. You can follow him on X/Twitter @ProfCarlRhodes.

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