By Greg Brown, Matthew Cranston and Jared Lynch
Employers, entrepreneurs and an ex-Labor premier have dismissed Anthony Albanese’s olive branch on his capital gains tax overhaul as insufficient in addressing the bill’s “devastating consequences”, after the ALP offered small business major concessions and backflipped on higher taxes for testamentary trusts.
In a bid to cauterise the budget’s political damage, Jim Chalmers has also committed to limiting his ministerial discretion in the negative gearing and CGT bill to win Greens support in parliament this month – weeks after dismissing The Australian’s reporting of the issue as a “beat-up”.
The Prime Minister and the Treasurer on Thursday revealed that Labor would allow businesses with a turnover of up to $10m to receive a 50 per cent discount on the CGT on the sale of active assets, up from the existing $2m threshold.
The government has also declared its intention to carve out “innovative start-ups” with a turnover of up to $50m from the new CGT regime, although the design of this will not be finalised by the time Labor aims to pass the bill through the Senate in the next parliamentary fortnight.
A Treasury discussion paper released on Thursday proposed that the existing 50 per cent CGT discount remain for founders and shareholders of start-ups younger than 10 years that are “genuinely focused on developing one or more new or significantly improved innovations for commercialisation”.
Under the preliminary proposal from Treasury, a start-up would only be eligible for a carve-out if it had high growth potential, access to international markets and had proved it had competitive advantages.
The announcement on concessions was made ahead of Friday’s release of a Senate committee’s report examining the bill to reform CGT and negative gearing, with the Labor-dominated committee likely to back the reforms despite widespread concern within the business community.
The Australian revealed days after the budget that discretionary testamentary trusts would be hit with higher taxes under the government’s reform proposals, with the Coalition and estate managers describing it as a stealth death tax.
With the government expected to follow up its tax concessions with an extension of the fuel excise cut after the end of June, Mr Albanese declared on Thursday he would take on the remarkable rise of One Nation by advocating for “what we regard as the national interest”.
“I think that One Nation do not present alternatives,” Mr Albanese said. “This is genuine reform, and genuine reform is often difficult, but it’s the right thing to do, done for the right reasons.
“In order to give Australian workers a tax cut, in order to make sure that more Australians can get into their first home, and in order to make sure that we treat income earned from work, which is how most people overwhelmingly get their income to get by, more equally with income from assets.”
Dr Chalmers said 98 per cent of businesses would be eligible for CGT concessions under the government’s plan.
Angus Taylor said the government’s concessions punished businesses that succeeded.
“We’re going to fight it all the way,” the Opposition Leader said.
The Business Council of Australia, Australian Chamber of Commerce and Industry, Australian Industry Group and Council of Small Business Organisations Australia united to demand more changes on the bill.
“This is really a rushed patch-up job trying to deal with the welter of criticisms since the budget, so the government can rush the legislation through parliament with as little scrutiny as possible,” said ACCI chief executive Andrew McKellar.
Some of Australia’s most prominent tech founders also criticised the carve-out system laid out in the consultation paper as the “opposite of simplistic” and too restrictive, although it was backed by the Tech Council of Australia.
Self-made rich lister Christian Beck attacked the proposals in the carve-out consultation paper as a “dream for accountants and lawyers” but a “nightmare” for investors and founders.
“I think what they’re doing is the opposite of simplistic,” Mr Beck told The Australian.
“It’s like a nightmare. It’s a dream for an accountant, but it’s a nightmare for anyone trying to understand it. Never mind, make investment decisions, really.”
Finder.com.au co-founder Fred Schebesta said the proposals did not go far enough, while SkyCredit Group chief executive Stuart Stoyan warned that the consultation paper raised “more questions than answers.”
“The government’s definition of an ‘eligible start-up’ is restrictive and more a tightly gated founder concession than a game-changing start-up tax incentive,” Mr Stoyan said.
Some Labor MPs privately questioned why the small business exemptions and start-up carve-outs were not unveiled in the budget, arguing it would have saved the government from taking such a battering over the broken promises on tax hikes.
There were MPs who also doubted the government would be rewarded for the backflip, arguing that it highlighted Dr Chalmers had “overreached” and should have limited the tax changes to housing investments.
“I just think it shows that we got it wrong,” one MP said.
Former Queensland Labor premier Peter Beattie said the government’s CGT reforms threatened to have “devastating consequences” on the biotech sector unless more concessions were granted.
While Mr Beattie said proposed exemptions for biotech start-ups identified in a Treasury discussion paper on Thursday were “welcome”, he said other proposed changes could be “equally damaging” to biotech.
“The proposal to limit the (Research and Development Tax Incentives) concessions to Australian companies that are no older than 10 years would have been particularly punitive to biomedical start-ups,” Mr Beattie writes in The Australian.
“It is simply not possible to develop a drug or medical device within 10 years.
“This change would be devastating for the sector and healthcare solutions, as it would deprive these companies precisely at the time when biotech companies are facing their most capital intensive period as they embark on late-stage clinical trials.”
The government’s discussion paper on the start-up carve-out flagged the potential of extending the RDTI concession to 15 years for biotech, something Mr Beattie said was “essential”.
Billionaire entrepreneur Shaun Bonett criticised the Albanese government for its misguided CGT policy and warned that Australia could not tax or regulate its way to prosperity.
Mr Bonett, owner of commercial property firm Precision Group and tech start-up Prezzee, said the changes were incorrect from the start.
“The backflip is sensible, but it should never have been necessary,” he told The Australian.
“Governments often underestimate how quickly uncertainty changes behaviour. Investors can tolerate paying tax; what they struggle to tolerate is not knowing what the rules will be tomorrow. The lesson here is that Australia cannot tax or regulate its way to prosperity.”
Association of Mining and Exploration Companies chief executive Warren Pearce said it was hard to understand why the government had looked after wealthy venture capitalists and angel investors in tech, but not mum-and-dad retail investors in mineral exploration.
“This is an own goal of epic proportions for the Australian government, given its ambitious critical minerals agenda,” Mr Pearce said.
On Thursday the government revealed that the trust exemption had an indicative cost of $50m over the forward estimates, leaving the exemption for CGT costing $425m.
Figures obtained by The Australian indicate the CGT was only expected to make about $400m over the forward estimates before Thursday’s change, meaning the overall CGT changes would not raise revenue over the forward estimates.
While just one of the four exemptions for business were revised, businesses that operate within trusts will still be subjected to the new minimum 30 per cent capital gains tax and the minimum 30 per cent tax on distributions.
The government is expecting many businesses will rollover from trusts to companies.
CPA Australia’s head of tax policy Jenny Wong said Thursday’s changes were a “constructive step forward”, but that “critical design questions remain unresolved.”
CPA Australia cautioned that the changes that increase the threshold on only one of the four small business CGT concessions raises concerns about consistency and complexity.
“Further analysis is needed to understand why the government has chosen not to increase the thresholds for the other three CGT concessions,” Ms Wong said.
Wilson Asset Management’s Geoff Wilson said the government’s changes on Thursday were an admission that the tax changes would hurt investment.
“Every carve-out is a confession. When a government tells you that its new tax rules will discourage investment in innovative start-ups, and that those businesses therefore need a special exemption, it has already conceded the central point: the new rules discourage investment.”
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