Anthony Albanese is warning that Australia's social cohesion is under threat as he prepares to push for cuts to investor tax concessions in next month's federal budget. The intervention comes amid mounting speculation that Labor is considering sweeping changes to both capital gains tax and negative gearing.
Budget Theme of Resilience
With 'resilience' set to be a defining theme of the May 12 budget, Albanese says the nation's challenges extend well beyond supply chains and national security to a widening intergenerational divide fuelled by the housing crisis. In a speech delivered at a mining breakfast in Perth on Wednesday, the prime minister argued that tax reform is necessary to preserve social cohesion.
'Resilience is absolutely an economic imperative, for skills and energy and jobs and growth and productivity,' Albanese told the Chamber of Minerals and Energy of Western Australia. 'Building our resilience is about protecting ourselves from the economic division and social dislocation we have seen take hold in other parts of the world where people feel like the system is broken beyond all repair.'
Government's Most Ambitious Budget
Albanese said the budget will be the government's most 'important' and most 'ambitious' to date. The remarks come as the government is widely understood to be preparing a major overhaul of the long-standing capital gains tax (CGT) discount, a move with potentially significant consequences for both property investors and sharemarket participants.
Labor is expected to announce on budget day that it will scrap the 50 per cent CGT discount for assets held longer than 12 months, a concession introduced by the Howard government in 1999. In its place, the government would revert to an inflation-indexation model first used under the Keating government, taxing real gains over the life of an asset after adjusting for inflation.
Scope of Changes
While early debate focused on limiting the change to property investments, the proposal is now understood to extend across asset classes, including individual share portfolios. Under the current system, investors who hold an asset for more than a year can halve their CGT liability, with only 50 per cent of the gain added to assessable income and taxed at their marginal rate.
The discount was designed to simplify the tax system, encourage long-term investment and partially offset inflation. An indexation model, by contrast, would lift an asset's purchase price in line with inflation, typically measured by the Consumer Price Index, before calculating capital gains, meaning tax is paid only on real, rather than nominal, returns.
Reactions and Warnings
Any such shift would mark a sharp change in approach, and has already prompted alarm among investors and business leaders. Freelancer chief executive Matt Barrie warned that broad changes to capital gains tax could have severe unintended consequences. He said a CGT overhaul that also captures investments like shares 'would wreck the stock market'.
AMP chief economist Shane Oliver has also cautioned against targeting individual share portfolios, warning it could undermine investment incentives. 'So, while the tax system is complicated with various concessions – that can be too generous or lead to inequities, curtailing access to them (as is being considered in relation to capital gains, negative gearing and trusts) will only add to the burden on a relatively small group,' Oliver said. He warned such changes would 'act as a disincentive for work effort when we should be doing the opposite.'
