By Phillip Coorey and Paul Smith
The nation’s peak business groups have slammed the government for “needlessly and recklessly” ramming through parliamentthe budget tax changes, and urged a review within three years to deal with what they are convinced will be unintended consequences.
The concerns were expressed via submissions to a Senate inquiry that has been allowed just two days next week to scrutinise what Treasurer Jim Chalmers said was the biggest shake-up of the tax system in more than 25 years.
While the government, with the support of the Greens, intends to push the legislation through the Senate by July 2, when parliament recesses for the winter, the Coalition held to its threat to delay passage of the unrelated legislation to cut the cost of the NDIS by $37.8 billion, unless there was a proper inquiry into the budget measures.
Last month, the budget broke a raft of election promises by curbing negative gearing to new properties only, and replacing the 50 per cent capital gains tax discount with a less generous version of the pre-1999 system, under which the discount was indexed to inflation over the life of the asset.
The key differences from the previous model are that there will be no five-year averaging of gains, a minimum 30 per cent rate will apply to real gains, and pre-1985 assets will no longer be fully exempt. The CGT changes will apply to all asset classes, not just housing.
The tax measures take effect from July 1, 2027, with the trade-off being a $1000 standard income tax deduction, and an annual $250 rebate paid to salary earners at the end of each financial year.
The CGT changes have been met with widespread hostility by small business, start-ups and investors who have called for exemptions from the increase. The budget has proved deeply unpopular with Generation X and Baby Boomers, but has also failed to excite those whom it was intended to benefit – Millennials and Generation Z.
Unease over the budget comes amid surging One Nation popularity. The latest The Australian Financial Review/Redbridge Group/Accent Research poll reveals primary support for One Nation has jumped four percentage points to 31 per cent since the pre-budget poll, while Labor’s primary vote fell three points to 28 per cent.
In its submission, the Business Council of Australia supports the tax cuts but not the increases. While recommending the government not proceed with the measures, it accepts that it cannot stop them. It warns extending the tax changes beyond real estate will reduce investment, productivity and economic growth and will increase the complexity of the tax system.
“The consequences of the bill, including the impacts on investment, have not been assessed beyond the property sector. Despite this, the entire process has been needlessly and recklessly rushed,” it says.
As a fallback, it says there must be a “mandatory, fully independent and transparent post-implementation review within three years to assess the effectiveness and efficiency of any changes in meeting their objectives”.
“This review should be brought forward in the event of an unexpected economic downturn or other relevant major developments.”
The submission from the Australian Chamber of Commerce and Industry, which represents the SME sector, raises similar concerns. So rushed is the process that Chalmers will not announce carve-outs for start-ups and others with zero or low-cost capital bases until after the legislation has passed.
The ACCI says the $2 million turnover threshold, below which businesses are subject to exemptions from CGT if they meet other criteria, should be lifted to $10 million.
“The key logical error at the heart of the budget changes is to think that tax reform requires higher taxes on investment in business,” says the ACCI.
Writing a submission in a personal capacity, Danny Wu, head of artificial intelligence products at Australia’s biggest private technology company Canva, said the new CGT rules would have caused him to leave Australia to join Google had they been in place 10 years ago when he joined the start-up.
He said he had taken substantially lower total compensation than he was offered by the US tech giant as a 17-year-old, in exchange for equity when joining Canva. Without a start-up carve-out, this equity will now be taxed much higher when he sells his shares, and he said this would cause others to avoid taking the risk of joining Australian start-ups.
“It hurts ambitious young Australians by pulling up the ladder, and creates one of the highest and most punitive taxation regimes for growth investors,” Wu wrote.
“These changes genuinely change the calculus for any high-paying individuals considering residency in Australia … And they change the calculus for Australians, including myself, on whether it would continue to be practical to call Australia home.”
A submission from wealth management firm Wilson Asset Management said the government should retain the CGT discount for all assets except property.
Its chairman Geoff Wilson warned that by increasing the tax burden on long-term capital gains while leaving income-producing assets comparatively more attractive, the changes would redirect Australian savings away from growth companies, founders and venture capital, and towards yield-producing assets, like property and shares that generate income.
“That is the opposite of what a productivity-focused economy requires, and it is the opposite of what the government says it wants,” Wilson wrote. “Our central concern is that the bills will make Australia a less attractive place to invest, build businesses and a better financial future.”
He said the planned changes would harm the innovation ecosystem, damage small business succession and disproportionately burden family farms and intergenerational business succession.
The submission suggests that if the CGT reforms proceed, preferential treatment could be retained for long-term investment in Australian operating companies, without harming the government’s stated objective of improving housing affordability and equity. It said the long-term losers from the policy would be future founders and investors.
“A carve-out for Australian companies would preserve incentives for entrepreneurship, business formation, capital raising and productivity growth, while allowing the government to pursue its broader policy objectives elsewhere,” the submission said.
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