Treasurer Jim Chalmers has flagged a ‘public conversation’ about Australia’s current fiscal settings, with economists pointing to tax reform as a major priority.
An overhaul of Australia’s capital gains tax system could improve the budget by $5 billion annually, with leading economists throwing their weight behind a return to indexing investment returns to inflation as part of a broader package of tax reform.
One of the main reasons for the discount – but not the only one – is so that investors are not taxed for the component of their capital gain that is due to inflation.“While obviously not true given high inflation at the moment, over the previous 20 years, the CGT discount on average overcompensated property investors for the impacts of inflation,” Ms Wood toldAssuming an average inflation rate of 2.
Ms Wood said there was a case to either return to the pre-1999 system, or to simply halve the discount to 25 per cent. About 75 per cent of the benefit goes to the highest-earning 10 per cent of taxpayers, Treasury estimates, since they are more likely to report capital gains and pay the highest marginal tax rate, making the discount worth more.Centre for Independent Studies senior fellow Robert Carling said he does not support reforming the 50 per cent discount without broader tax reform.
“The 50 per cent discount was meant to be an approximate allowance for all of these considerations – it was never meant to be solely an allowance for inflation,” Mr Carling said.
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