Capital gains tax (CGT) changes are already having an impact on wealth inequality, according to economist Greg Jericho, who argues that vested interests are running scared. In a recent column for Guardian Australia, Jericho stated that the proposed changes to the CGT discount have not yet become law but are already influencing the housing market, despite conservative opposition claiming the discount was not a cause of the housing affordability crisis.
Research Points to CGT Discount as Root Cause
Jericho, in his role as chief economist for the Australia Institute, appeared before a Senate committee into the tax changes. He asserted that his research showed the CGT 50% discount was 'ground zero of the housing affordability crisis.' Opposition finance spokesperson Claire Chandler challenged this claim, citing arguments from economist Richard Holden that banking deregulation, inflation targeting by the Reserve Bank of Australia, and Basel I and II accords played larger roles. Jericho countered that dwelling prices remained stable relative to household income during those periods and only began to rise after the CGT discount was introduced in 1999.
Market Impact Already Visible
Jericho noted that the tax discount, which critics claim had no impact on house prices, is now being cited as a cause for house price falls of $100,000 or 10% nationally, and 7-8% in Sydney and Melbourne over the year to November. He described this as significant for a policy that supposedly only had an effect 27 years ago.
Younger Australians Not the Main Beneficiaries
Opposition parties, including Pauline Hanson's One Nation, have suggested that capital gains are vital for young people and that the changes will hurt them. However, Jericho examined Australian Taxation Office data for 2023-24, which showed that of 1.6 million people with capital gains, 369,000 were under 35, but nearly 400,000 were over 65. The largest cohort of capital gains recipients was those in their 50s. Younger people also earn much less on average from capital gains than older individuals, with capital gains accounting for less than 1% of total income for those under 35, compared to 10% for those over 65.
Capital Gains Concentrated Among Wealthy
Jericho highlighted that capital gains are predominantly the domain of the richest Australians. In 2023-24, 27,964 people with incomes above $1 million represented just 0.2% of all income earners but took in 38% of net capital gains. Occupation data showed that higher-income jobs had a greater percentage of people earning capital gains, with financial advisors, dealers, anaesthetists, and economists among the top groups.
Political Motives Questioned
Jericho questioned the motives of One Nation and other vested interests, suggesting their concern is not for young people but for older, richer constituents. He argued that for 30 years, governments have prioritized that cohort, and now that a government is finally addressing intergenerational wealth inequality, it is no surprise that vested interests are upset. Weekend house auction results and official taxation data, he concluded, show their arguments are hollow.
