Economists Back Labor CGT Changes With Caveats as Business Groups Urge Rejection
Independent economists told a Senate inquiry the plan improves equity despite design flaws. Business groups urged rejection and the government is weighing limited carve-outs.
Several leading economists told a Senate economics committee on Monday that Labor's proposed changes to capital gains tax and negative gearing contain design flaws but remain an improvement over the current system. Michael Brennan, former Productivity Commission chair and chief executive of the e61 Institute, said there was scope for improvement and disagreed with the decision to impose a 30 per cent minimum tax on discounted gains.
He called the discount a principled approach that should apply to a broad range of assets.
"If you ask me what does an ideal capital gains tax system look like, it has inflation indexation at its heart," Brennan said. Independent economist Saul Eslake also objected to the 30 per cent minimum tax. He said the proposal would improve equity by bringing the tax treatment of investment income closer to the tax treatment of wage income.
Robert Varela from the ANU's Tax and Transfer Policy Institute said Australia's current arrangements for taxing investment income were a mess and the changes represented a step in the right direction. Varela added that the proposal removes some but not all of the distortions across investment types, some but not all of the margins for tax planning, and some but not all of the incentives for leveraged investment.
Treasurer Jim Chalmers is consulting with business groups on possible carve-outs to the new capital gains tax discount, likely to be granted for startups and perhaps some small businesses.
Assistant Treasurer Daniel Mulino told the ABC on Monday that changes would be focused on special circumstances. Saul Eslake supported a carve-out for startups. Michael Brennan said as a matter of pragmatism there may be a role for some carve-outs but the intention is to try to maintain maximum consistency.
