Tim Wilson on the debate to scrap the Capital Gains Tax discount | 7.30

Key Concepts

• Capital Gains Tax (CGT): A tax on the profit realized from the sale of an asset, like property or shares. The discussion centers on the discount applied to CGT for assets held over a year.
• Negative Gearing: A strategy where investors borrow money to purchase an asset (like property) and the rental income is less than the costs of owning it, creating a tax deduction.
• Refundable Franking Credits: Credits attached to dividends paid by Australian companies, allowing shareholders to receive a refund for excess credits.
• Housing Affordability Crisis: The increasing difficulty for individuals, particularly first home buyers, to purchase property in Australian capital cities.
• "Feeding the Crocodile": A metaphor used by Tim Wilson to describe a strategy of appeasing government demands for increased revenue without addressing underlying economic issues.

Debate on Capital Gains Tax and Housing Affordability

The core of the discussion revolves around potential changes to Capital Gains Tax (CGT) in Australia, specifically the 50% discount currently applied to gains from assets held for over a year. The debate is fueled by concerns about housing affordability and whether tax incentives for investors are exacerbating the problem. The upcoming May budget is expected to include changes to these taxes.

Government & CBA Position on CGT Discount

Matt Common, CEO of the Commonwealth Bank (CBA), Australia’s largest mortgage lender, indicated support for considering abolishing or reducing the CGT discount, framing it as part of a broader package of reforms. He stated, “I think it's part of a broader package of reforms. That's certainly something that should be given careful consideration.” This position suggests a willingness to engage with potential changes to the tax system.

Opposition’s Critique & “Feeding the Crocodile” Metaphor

Shadow Treasurer Tim Wilson strongly opposes changes to the CGT discount. He criticizes the CBA and Business Council of Australia (BCA) for what he terms “feeding the crocodile” – offering concessions to the government in the hope of avoiding further tax increases. Wilson argues this approach is fundamentally flawed, as it doesn’t address the root cause of the housing supply issue. He defines the “crocodiles” as the government seeking increased revenue and the BCA/CBA appearing to appease them without advocating for sound tax policy.

Wilson elaborates that the proposed changes, including a new housing tax, are unlikely to increase housing supply and will primarily serve to increase revenue for the Commonwealth. He emphasizes the importance of tax policy that incentivizes work and investment to build the future of the country, arguing the proposed changes fail to do so. He repeatedly stresses that the objective should be to incentivize work and capital, not simply raise revenue.

Supply vs. Revenue & New Construction Exemption

A key point of contention is whether changes to CGT will impact housing supply. Wilson argues that experts have clearly indicated the proposed changes won’t increase supply. He questions whether exempting investors involved in new construction from the changes would be a viable compromise. However, he remains skeptical, stating that even with such an exemption, the primary objective would still appear to be revenue raising. He asserts that the government’s inability to manage the budget is driving the push for increased taxes.

Historical Context & Shifting Political Landscape

The discussion references the 2019 election, where Bill Shorten’s proposed changes to CGT and negative gearing were defeated. Wilson highlights a significant shift in the electorate since then, with more younger voters and the removal of older voters. He also points to the removal of refundable franking credits as a key factor in the 2019 result, noting Australians rejected those proposals. He acknowledges the political environment is different now, citing high inflation and government debt.

Intergenerational Fairness & Housing Affordability Plan

Wilson acknowledges the growing issue of housing affordability, noting that no Australian capital city is currently affordable for first home buyers. He states the Coalition will develop policies around housing in the coming months, focusing on enhancing opportunities for the next generation to own a home. However, when pressed for specifics, he offers only “motherhood statements,” drawing criticism from the interviewer for lacking concrete plans. He rejects the idea of simply offering statements without well-thought-out proposals that will actually increase housing stock. He criticizes the Victorian government for proposing housing stock in economically unviable areas, framing it as a political narrative rather than a sustainable solution.

Economic Responsibility & Future Tax Policy

Wilson emphasizes his commitment to economic responsibility and avoiding commitments he cannot honor. He reiterates the Coalition’s general preference for lower taxes but refrains from guaranteeing tax cuts at the next election, pending a review of the budget. He expresses his dislike for the 47% income tax rate and aims to minimize taxes within a sustainable budgetary framework.

Logical Connections

The conversation flows logically from the initial discussion of potential CGT changes to a broader critique of the government’s economic policy. Wilson consistently frames the debate as a matter of principle – prioritizing incentives for work and investment over revenue raising. He uses the “feeding the crocodile” metaphor to illustrate his concern that the CBA and BCA are making concessions that will ultimately harm the economy. The discussion then pivots to the issue of housing affordability, highlighting the need for concrete solutions rather than political rhetoric.

Data & Statistics

• Housing Affordability: No Australian capital city is currently affordable for first home buyers.
• 2019 Election: Bill Shorten’s proposed changes to CGT, negative gearing, and refundable franking credits were defeated.
• Demographic Shift: The electorate has changed since 2019, with more younger voters and fewer older voters.

Conclusion

The debate highlights a fundamental disagreement over the role of tax policy in addressing housing affordability. While the CBA appears open to considering changes to the CGT discount as part of a broader reform package, the opposition vehemently opposes such changes, arguing they will not increase housing supply and will ultimately harm the economy. The conversation underscores the complexity of the issue and the lack of easy solutions, with both sides emphasizing the need for a comprehensive and well-considered approach. Wilson’s consistent focus on incentivizing work and investment provides a clear ideological framework for his opposition to the proposed changes.