‘Disaster tax’ disincentivises investment in the ‘lifeblood of Australia’, investor says

With aims to solve intergenerational inequity and the affordability of housing, the government introduced its removal of the 50 per cent capital gains tax (CGT) discount, replacing it with an indexation model, which one investor has called a “disaster tax”.

In a statement released in late June, Treasury said: “The old intersection between the tax system and the housing market helped make housing unaffordable and coincided with decades of low productivity growth.”

“We are taking action because doing nothing would have consigned another generation to that broken status quo and locked them out of the housing market.”

Despite this, recent analysis by SEC Newgate Australia revealed that the support for the CGT changes from a sample space of nearly 2,000 respondents fell from 33 per cent in May to 27 per cent in July, with opposition to the tax reaching 37 per cent in July.

According to its July statistics, two in five respondents said that the changes “would make it harder for people to get ahead financially”.

In a LinkedIn post, Wilson Asset Management chairman and fund manager Geoff Wilson said that “Australians are watching what this tax actually does to their investments, savings, their homes and their businesses”.

Speaking with Accounting Times, Wilson told the masthead that Australians are beginning to understand the negative consequences of the CGT changes.

“What people are starting to find out is they’ve increased the tax on businesses. That means there’s less opportunities, less businesses invested in, less opportunity for young people. It’ll have a greater negative impact on the economy. People are just starting to realise that”

Further, he noted the impacts on incentives for companies to reinvest into themselves. He said that companies are better off paying out 70 per cent of their income as a fully franked dividend than maintaining it to invest back into the business for capital growth because the “zero” taxpayer ends up paying 51 per cent and the 47 per cent taxpayer ends up paying 62.9 per cent tax on the money retained.

“It’s not in companies’ interest to retain earnings and to invest in their business and their employees anymore because they will get negatively impacted … it’s a disaster for productivity … it’s a disaster tax for the economy.”

“If they were serious about increasing Australia’s productivity, which is close to 60-year lows, then they wouldn’t increase the tax on Australian businesses.”

He stressed that nearly doubling the tax on businesses and investment will lead to an inevitable shift in these stakeholders’ behaviour, including less investment into high-growth companies and more investment into companies growing in line with inflation.

“We’re already seeing significant changes in behaviour … people are looking at restructuring their portfolios, so they’re not investing in the high-risk growth companies – effectively, the lifeblood of Australia.”

“They want to invest in companies that will only grow it about in line with inflation, so then they’ll pay no tax on the growth and are paid fully franked yields to them.”