By Greg Brown and Matthew Cranston
Jim Chalmers is predicting Australians will “over time” forget the anger they feel about broken promises in the May budget, as the peak body for private investment firms warns the proposed carve-out for innovative start-ups is too narrow and complex.
After Labor rammed its capital gains tax and negative gearing reforms through parliament on Thursday, Anthony Albanese and the Treasurer on Friday said the contentious tax package would become more popular over time and played down the damage broken promises have had on the government’s standing.
When asked if the anger towards the tax backflip would be “forgotten”, Dr Chalmers said “over time, because it’s the substance that matters”.
“The substance of this is dealing with issues in our housing market, which have locked young people out for too long,” he told ABC radio.
The answer by Dr Chalmers showcased the calculation behind the decision to unveil a series of broken promises in the first budget since Labor’s election win last year, with the government banking on voters shifting their focus onto other issues ahead of the next election due in just under two years.
On Friday the Australian Investment Council, which has hundreds of members collectively representing $161bn in assets across private investments and venture capital, said the government’s recommended carve-out was too narrow and would curtail investment. “Despite recognising the shortcomings of the indexation regime for businesses with a zero or low-cost base, the government’s proposed innovative business CGT concession is too narrow, too complex, and won’t help start-ups to scale,” AIC chief executive Navleen Prasad said.
“This week’s passage of the first tranche of capital gains tax legislation, and the narrow concession proposed alongside it, makes it harder to attract investment that funds Australia’s national priorities and grows local businesses.”
The council expects the carve-outs will mean start-ups could leave Australia if they grow beyond certain thresholds.
“The gap between start-up funding and subsequent growth capital has increased, leaving innovative businesses with two options: move offshore early, or struggle to reach their full potential,” Ms Prasad said.
The government’s consultation paper released last week showed it was recommending a carve-out for tech companies with less than $50m turnover, that were less than 10 years old, and were assessed as against the government’s “innovation principles”. The government is still consulting on the final model for the carve-out.
The Prime Minister on Friday said claims the government’s integrity was dropping – and that the budget initially included a death tax – as “complete nonsense”.
With the government being criticised for passing the legislation just six weeks after the budget, Mr Albanese said fast-tracking the measures into law would help deal with the “misinformation”. “You know what will happen now that it’s legislated? Some of the nonsense and scare campaigns will dissipate because people will be confronted with the reality,” he told the Seven Network. “People have to debate the reality. And the reality is the system was broken.
“And that’s why I, as Prime Minister, have a responsibility when something is identified as broken, to do my best to fix it, even if there’s a political cost of that.”
Wilson Asset Management chairman Geoff Wilson, the architect behind the campaign against Labor’s failed franking credit policy of 2019, said Dr Chalmers was wrong to think anger would subside. “Good luck. No one is going to forget this. The negative impacts are only just starting,” Mr Wilson said. “Once the eight million direct shareholders understand the tax changes, they aren’t going to vote in favour of this, they will support the Coalition or any other political party that repeals it.
“In 2018, the illogical franking credits policy took us two years to educate people on. This will be the same thing.”
Opposition Treasury spokesman Tim Wilson said Mr Albanese and Dr Chalmers “remain ignorant of the cascading consequences of their broken promises and higher taxes”. “As the Prime Minister has said himself, you can only lie to people once, and every implementation problem will be a financial dagger into an open trust wound,” Mr Wilson said.
The Coalition, meanwhile, is claiming business owners will typically pay about 25 per cent less capital gains tax under Angus Taylor’s policies, and in some cases 66 per cent. The Coalition’s analysis assumes a rate of return for a business of more than 5 per cent, and inflation is in line with the Reserve Bank’s 2.5 per cent target range. It considers all three of the government’s exemption thresholds.
Under the thresholds where revenue is below $10m, the Coalition keeps the 50 per cent CGT discount and matches Labor’s 50 per cent active asset reduction. The analysis also shows that the government’s backflip last week was not substantial, given that only the threshold of $2m to $10m revenue saw the effective tax rate reduced.
Mr Taylor said Labor was trying to “con small business into believing it has backflipped”. “But the truth is simple: small businesses will still pay more tax under Labor,” the Opposition Leader said. “This is a direct hit on the people who take risks, build businesses, employ Australians and keep local communities going.
“The Coalition will axe Labor’s toxic taxes and under our plan, a typical small business will pay 25 per cent less tax on capital gains compared to Labor.”
Dr Chalmers responded by saying: “It’s good to see the Coalition adopt our policies after spending nine years in office refusing to increase the active asset CGT concession threshold.”
The bill that passed parliament on Thursday included a ban on negative gearing on existing properties from July 2027 and replacing the 50 per cent CGT discount with an inflation-indexed model with a minimum 30 per cent rate on the real gain of an asset. The bill also included the $250 end-of-year tax offset for workers and a $1000 standard deduction for work-related expenses when Australians lodge tax returns.
Labor received the Greens’ support for the bill in the Senate after agreeing to ban property borrowing through self-managed superannuation funds.
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