Greens hold door open to capital gains tax reforms
Support from the Greens could hold the key to opening the door to capital gains tax changes as the government ponders reforms the opposition says it won't back.
WINDING back the capital gains tax discount must be part of a broader tax reform package tackling intergenerational inequity and sluggish productivity, the federal treasurer has been told.
The government refused to shut down reports it was considering cutting the 50 per cent discount on investment properties to 33 or 25 per cent, which received tentative support from economists, unions, the Greens and crossbenchers on Thursday.
But a major business lobby group warned Treasurer Jim Chalmers against “one-off revenue grabs”.
“From a business point of view, we’re very cautious about anything that involves a tax increase,” Australian Chamber of Commerce and Industry chief executive Andrew McKellar told AAP.
The government should pursue comprehensive tax reform that reduces the overall tax burden, he said.
Independent MP Allegra Spender agreed that tax changes should be revenue-neutral, with increases offset by reductions, but said changes to the capital gains discount should be on the table.
“So, I’m glad the treasurer is open to reform, but changing one tax can’t overcome intergenerational inequity or housing affordability,” she said.
Labor won’t need Ms Spender’s support to pass any changes through parliament, given it has a majority in the lower house, but will need the Greens or the Liberals to get on board in the Senate.
The opposition has already come out against any changes, but the Greens have left the door wide open to the government if it goes through with the change.
“This is a historic opportunity … to bring about significant reform to the mind-bogglingly, eye-wateringly generous capital gains tax break, which overwhelmingly favours the already super-wealthy and high-income people in this country,” Greens senator Nick McKim said.
Senator McKim, who is heading a parliamentary inquiry into the discount, claimed the tax break was driving up home prices by encouraging investor demand.
Prime Minister Anthony Albanese and Housing Minister Clare O’Neil would not rule out reducing the discount, but said the government had no plans to change its tax policy.
Mr McKellar said it was important not to overstate the impact that reining in investor tax concessions, including negative gearing, would make to housing affordability, which was primarily driven by a shortfall in supply.
The change would make sense as part of a suite of productivity-boosting tax reform in the May budget to help Reserve Bank governor Michele Bullock in her fight against inflation, AMP chief economist Shane Oliver said.
Shifting the tax burden from income towards goods and services would boost incentives to work and invest, while reducing intergenerational inequity, he said.
Reducing the discount was a worthwhile reform but would not have much of an impact on productivity, Deloitte Access Economics partner Stephen Smith said.
“We need a broader basket of reforms, related to company tax investment allowances in particular, and other things like reducing personal income tax, to improve incentives around work and reward for people’s work as well,” he said.
However, he said the Productivity Commission’s recommendation of a new cashflow tax to encourage capital expenditure was not the right idea because it would add too much complexity for businesses.
Dr Oliver said the most immediate thing the government could do to tackle inflation was cut spending to give the private sector more room to grow.
Otherwise, the RBA would be forced to hike rates again to get inflation down.
Reducing reliance on “in-kind” payments, such as childcare subsidies, and increasing means-testing should be a priority, Dr Oliver said.
The government has taken steps to get spending under control, such as lowering the NDIS growth target from 8 to 6 per cent per year.
