By Geoff Wilson
The ALP’s national conference begins by asking an important question: how do we build an economy that works for everyone?
It is exactly the right question.
Only weeks ago, federal parliament passed a capital gains tax that makes it harder to build Australian businesses.
You cannot build an economy that works for everyone by making it harder for Australians to invest in Australian companies.
This is not simply a tax on investors; it is a tax on productive investment. It raises the cost of capital for Australian businesses, discourages direct share ownership and shifts investment away from growing companies towards mature businesses paying fully franked dividends.
Australia needs the opposite.
Productivity growth has been the weakest in about 60 years. Business investment has declined as a share of GDP. Fewer companies are listing on the ASX and productive capital has become increasingly scarce.
“Productivity begins with capital formation.”
The economic chain is straightforward. Higher living standards require higher wages. Higher wages require higher productivity. Higher productivity requires business investment. Business investment requires capital formation. Raise the cost of productive capital and every link in that chain weakens.
The legislation asks Australia’s 7.7 million direct shareholders one question: should they invest in companies that reinvest profits to grow, or companies that distribute those profits today?
The tax system now overwhelmingly favours dividends.
From July 1, 2027, the effective tax rate on capital gains arising from retained company earnings on capital gains could reach 51 per cent for a retiree who pays no income tax and up to 62.9 per cent for an investor on the highest marginal tax rate. Both would pay less tax on a fully franked dividend from the same company. Capital growth has become the most heavily taxed investment return in Australia.
Australia has almost 2.7 million active businesses. More than 97 per cent are small businesses employing more than 5 million Australians. Every successful Australian business starts small and depends on patient capital long before profits arrive.
The people affected extend far beyond today’s investors. They include founders who spend decades building businesses, employees rewarded through equity, families investing directly outside superannuation and young Australians prepared to exchange the security of a salary for the opportunity to build something of lasting value.
This is a tax on aspiration.
It tells Australians that taking risks, backing entrepreneurs and building wealth through enterprise deserves heavier taxation than investing in mature income-producing companies. At a time when many younger Australians already fear that financial independence is slipping further out of reach, this legislation makes building wealth through productive investment even harder.
The government has already acknowledged the principle. Treasury has proposed restoring the 50 per cent capital gains tax discount for qualifying innovative start-ups because the new rules discourage investment in businesses that create jobs and lift productivity.
The obvious question follows: if protecting productive investment is good policy for innovative start-ups, why isn’t it good policy for every productive Australian business?
Innovation does not stop after ten years. Businesses do not stop creating jobs once they reach $50 million in turnover. Companies do not stop contributing to Australia’s prosperity once they list on the ASX.
There is another inconsistency. New residential dwellings remain the only major asset class retaining the full 50 per cent capital gains tax discount. Housing was where the problem was diagnosed. It is now the one area where the concession remains.
The legislation also gives foreign investors a significant advantage. Foreign investors generally pay no Australian capital gains tax on portfolio investments in Australian-listed companies. Australians can pay up to 62.9 per cent on exactly the same investment. Our tax system now favours overseas capital over Australian savings.
There is still time to fix this before the law commences on July 1, 2027.
The government should apply the principle it has already accepted: protect long-term investment in every productive Australian business, listed and unlisted. Otherwise, parliament should repeal these provisions before they take effect.
Australia has never become more prosperous by making it harder for Australians to invest in Australian businesses.
If Labor genuinely wants an economy that works for everyone, it should begin by rewarding aspiration, productive investment and Australian ownership.
Productivity begins with capital formation.
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