Former prime minister Paul Keating has told his Labor successors to hold the line on controversial capital gains tax changes, warning that exempting commercial assets would merely swap one economic distortion for another, which is a bit like swapping a headache for a migraine.
Small businesses and startups are currently locked in a heated disagreement with the Albanese government over plans to replace the 50% capital gains tax discount with an inflation-based model - part of a tax reform package unveiled in this month's federal budget. Keating, the architect of major economic reforms in the 1980s and 90s, said the current settings, in place since 1999, have been a disaster for the productive economy, diverting financial resources into housing like a kid funneling lunch money into arcade games.
"This had a major and deleterious impact on investment and with it productivity," Keating told Guardian Australia on Wednesday, adding that the shift in capital taxation under the new arrangements is "so marginal that no entrepreneurial initiative is likely to be thwarted by it." He urged the government to ensure the change doesn't create "a new and further distortion to the economy by exempting all other assets, particularly commercial ones."
Treasurer Jim Chalmers has backed this view, arguing that the Howard government's changes overcompensated investment in established housing and under-compensated other types of investment. "We didn't think it made a lot of sense to replace one big distortion with another kind of distortion," he said, presumably while resisting the urge to add a mic drop.
But investors and entrepreneurs are not amused. They warn the changes will throttle investment and risk-taking, which is a bit rich coming from a sector that has enjoyed a generous tax break for decades. The legislation includes the CGT changes, tweaks to negative gearing rules, a $1,000 standard tax deduction, and a new $250-a-year tax offset for workers.
Labor wants the bill passed before parliament's winter break in July, but the Coalition is dragging its feet, pointing out the changes don't start until July 2027. Shadow treasurer Tim Wilson said the Coalition plans to use "maximum leverage" to scrutinise the plans, while a possible alliance between the Greens and the Coalition could lead to Senate inquiries on the tax changes and NDIS spending cuts.
Meanwhile, the government has already exempted small businesses with revenue below $2 million from the changes, and Anthony Albanese has hinted at further carve-outs. This has sparked a social media campaign featuring AI-generated memes mocking the prime minister, because nothing says serious policy debate like a deepfake of Albanese winking at a tax loophole.
Guardian Australia has learned that some Labor MPs are unhappy the budget message has drifted away from intergenerational fairness in the housing market amid all the pushback. Because nothing says "fair go" like a tax reform that everyone hates equally.