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🇦🇺 Australia /Economy & Trade

Labor's capital gains proposal flawed but better than current system, economists say

From ABC Australia · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Economists told a parliamentary inquiry that Labor's proposed changes to negative gearing and capital gains tax have design flaws but are an improvement over the current system.
  • While progressive groups supported the changes for generational fairness, business groups warned of chilled investment.
  • Experts favored an inflation-indexed discount, though some criticized the 30% minimum tax on discounted gains, arguing it would improve tax equity.

Economists have indicated that the Australian Labor party's proposed reforms to negative gearing and capital gains tax, while containing some flaws, represent an improvement over the existing framework. Appearing before a parliamentary inquiry on Monday, several leading economists offered qualified support for the government's plan to replace the current 50% capital gains tax discount with one linked to inflation.

The hearings revealed a stark division between progressive groups, who lauded the proposals for enhancing generational fairness, and business organizations, which expressed strong opposition, fearing a negative impact on investment. However, independent economists largely favored the inflation-indexed approach.

If you ask me what does an ideal capital gains tax system look like, it has inflation indexation at its heart.

— Michael BrennanMichael Brennan, a former Productivity Commission chair and chief executive of the e61 Institute, discussing the merits of an inflation-indexed capital gains tax.

Michael Brennan, former chair of the Productivity Commission and CEO of the e61 Institute, suggested there was "scope for improvement" in the plan, particularly regarding the proposed 30% minimum tax on discounted gains. Despite these criticisms, he described the inflation-indexed discount as a "principled approach" that should apply broadly across assets, not just property.

Why should people earning a similar amount of income be asked to contribute different proportions of that income to the cost of providing schools, hospitals, policing and other public services simply because they earn it in different ways?

— Saul EslakeIndependent economist Saul Eslake questioning the equity of the current tax system regarding investment income.

Independent economist Saul Eslake echoed concerns about the 30% minimum but argued the reforms would boost equity by aligning the tax treatment of investment income more closely with that of wage income. He questioned the fairness of taxing individuals differently based on their income source for essential public services.

Robert Varela from the ANU's Tax and Transfer Policy Institute described Australia's current system for taxing investment income as "a mess." He stated that the proposed changes, while not perfect, move in the right direction by reducing distortions across investment types, limiting tax planning opportunities, and curbing incentives for leveraged investment.

Australia's current arrangements for taxing investment income were 'a mess' and this was 'a step in the right direction'.

— Robert VarelaRobert Varela from the ANU's Tax and Transfer Policy Institute commenting on the proposed tax reforms.
DistantNews Editorial

Originally published by ABC Australia in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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