Unwinding the capital gains tax folly |
Tax concessions on property and capital gains have driven housing inequality and distorted the market, and fixing them requires structural reform – not Budget tinkering.
Prime Minister Anthony Albanese and Treasurer Jim Chalmers have confirmed in the past week that the May Budget will contain major tax changes to help intergenerational inequality.
Hopefully, it will be more than the half-hearted tinkering we have seen so far on major policy matters: the corruption commission; superannuation; and gambling.
However, the Budget process is the wrong vehicle for an overhaul of the tax system. It is inherently secret, so there will be no input from academics, think tanks, and other outside experts and no scrutiny or testing of proposals until it is too late and the government is locked in.
First, an apology for being very detailed in what follows, but bear with me. Too often sweeping, simplistic, notionally appealing policies in fact contain deep flaws that shut out many in society.
A classic example of this was the 1999 Budget which created much of the tax mess we are in now.
Then Treasurer Peter Costello pulled out of the hat the 50 per cent capital-gain tax concession. It wasn’t a tax policy. It was a vote-buying thought bubble – more bubble than thought.
And it is deeply flawed at both ends: too much concession in the short term and a vicious, unfair penalty in the long term.
The 1999 changes when combined with negative gearing created a housing monster that has white-anted the Australian dream of home ownership.
For the past few decades more and more investors have been buying more and more houses with high interest repayments and high out-goings which they........