CANBERRA: Australia’s centre-left government is consulting with small businesses, particularly startups, over the implications of a planned clampdown on tax breaks unveiled in this month’s budget, Cabinet Secretary Andrew Charlton says.
Under the proposed changes, a current 50% capital gains tax (CGT) discount will be replaced by an inflation-indexation model with a 30% minimum tax rate on net capital gains, covering everything from property to shares and businesses.
Yesterday, Charlton acknowledged that the new system could be problematic for firms with a very low capital base – like startups – as they have little to inflate off.
“There are real concerns out there, the government recognises those concerns, we are consulting on them,” said Charlton, who prior to entering politics had founded a company and later sold it.
“We should let that consultation, which is being led by the treasurer and Treasury, go through the normal process.”
The Labour government has faced a backlash from small business owners, who have used artificial intelligence-generated images depicting Prime Minister Anthony Albanese as a silent business partner, to criticise the decision to include all asset classes in the CGT changes.
They’ve described the overhaul as a “tax on success”.
Charlton, speaking in an interview with Sky News, pointed out the budget documents had included a statement that the government was aware of concerns among start-ups and would be talking with firms.
He also dismissed global comparisons with Australia’s new CGT regime that show it’s uncompetitive.
“You can’t compare the tax rate on a real gain in Australia with the tax rate on a nominal gain in another country, that is not apples for apples,” said Charlton, a one-time economic adviser to former Labour Prime Minister Kevin Rudd.
“In many cases, our regime will be more generous to assets that have experienced a lot of inflation over a long period of time, and that is not compensated for in the regimes of other countries,” he added.
The scrapping of the CGT discount was part of a suite of measures aimed at taking some of the steam out of house prices, which have soared in recent decades due to investors snapping up existing dwellings.
Treasurer Jim Chalmers, in a podcast with the Australian National University last Saturday, was asked why the government hadn’t limited the CGT clampdown to housing and left other assets alone.
He said the decision was taken to avoid removing one distortion in the tax system and then replacing it with another.
Charlton, who has a PhD in economics, said the government had to tackle housing in the budget because it was having a major impact on the economy.
“We have a huge amount of investment going into real estate, existing property, and that investment is pushing up prices, it’s pushing out new home buyers, and it’s starving other productive parts of the economy of investment,” he said.
“Our tax system was making that problem worse,” Charlton further pointed out. — Bloomberg
