By Geoff Wilson
The suggestion that only fund managers care about capital gains tax is naïve. All Australians who have invested their savings have a direct stake in this debate.
The debate around capital gains tax should remain focused on productivity, investment and aspiration rather than political point-scoring.
It should be about one simple question: how do we encourage Australians to take risks, build businesses, invest for the long term and create productive capital?
Right now, Australia desperately needs more economic dynamism, not less.
We have a productivity problem, a capital formation problem and an intergenerational aspiration problem. The rumoured move to effectively abolish the 50 per cent capital gains tax discount across businesses, shares, farms and crypto risks making all three worse.
The prime minister this week dismissed my criticism of the proposed changes by calling me a “political participant”. That may make for a sharp soundbite, but unfortunately, it completely avoids the substance of the debate.
The suggestion that only fund managers care about capital gains tax is naive. All Australians who have invested their savings into shares, a business, a farm or their superannuation have a direct stake in this debate.
I have spent more than four decades investing in Australian businesses, backing entrepreneurs, employing Australians and advocating for retail shareholders. If defending long-term investment and entrepreneurship makes someone a “political participant”, then every small business owner, farmer, founder and investor in Australia should probably qualify too.
The reality is that this debate is so much bigger.
“We should be asking how to attract more long-term capital into productive assets, not how to drive it away.”
The proposed changes would not simply affect wealthy investors. They would affect the family that builds a small manufacturing company over 30 years, the farmer who spends decades improving land productivity, the founder who reinvests every dollar back into growing a business, the retiree who invests in Australian companies through the share market and the young Australian trying to build wealth through disciplined long-term investing.
Capital gains tax is fundamentally different from ordinary income tax because capital funds businesses, innovation, jobs and productivity, with gains often accumulated over decades rather than earned in a single year.
Inflation compounds over that time. Risk compounds over that time and capital is locked away. That capital continues to work for all Australians.
That is why Australia moved away from simple indexation and introduced the 50 per cent CGT discount in 1999. It recognised that taxing long-term gains at full marginal rates created distortions, punished patient capital and discouraged entrepreneurship.
The current rumours suggest the government may return to an indexation system. While indexation may appear economically tidy on paper, applying it broadly across productive assets without preserving incentives for long-term investment would be a profound mistake.
Indexation takes no account of the different risk profiles of capital investment, whether it is put to productive use or locked up for many years.
Australia already suffers from weak productivity growth. Business investment remains subdued. Early-stage companies struggle to access capital. The listed small and micro-cap market has become increasingly fragile.
We should be asking how to attract more long-term capital into productive assets, not how to drive it away. The unintended consequences could be severe.
Investors may increasingly favour lower-risk passive assets over productive enterprise.
Entrepreneurs may choose to move offshore. Capital could flow away from innovative smaller Australian companies into property (the principal place of residence) or cash.
Risk-taking could diminish precisely when Australia needs more economic dynamism.
There is also a deeper issue of trust.
‘Undermining confidence’
Australians make investment decisions over decades based on the rules that exist at the time. Changing those rules retrospectively, or without proper grandfathering protections, undermines confidence in the stability of the tax system itself.
A stable tax system matters. Once investors begin to fear that long-term rules can be rewritten at any moment, the risk premium across the entire economy rises.
None of this means the tax system should never change. There is a legitimate debate to be had about improving fairness, simplifying the system and encouraging productive investment over speculation.
In fact, there is a strong argument that passive assets and productive assets should not be treated identically.
If the government genuinely wants to improve productivity, it should consider increasing incentives for investment into productive businesses, innovation and entrepreneurship, while carefully examining areas where tax settings may distort capital allocation toward less productive uses.
The government’s rumoured proposal of taxing productive capital more heavily across the board is not reform. It is revenue collection dressed up as reform.
Australia cannot tax its way to higher productivity. It cannot build stronger businesses by discouraging people from creating them. And it cannot solve intergenerational inequality by making aspiration less attractive.
Australia needs more investment, more innovation, more entrepreneurs and more patient capital. Not less.
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