‘All stick and no carrot’: Business groups want CGT tax changes limited to housing

Business groups are demanding the Government limit its capital gains tax changes to housing only or risk stifling investment.

But Treasurer Jim Chalmers has all but ruled this out, insisting there was no case to skew incentives in the opposite direction than they’ve been for the past 25 years.

Pause and rethink was the directive to the Treasurer and Prime Minister from Australian Chamber of Commerce and Industry boss Andrew McKellar on Wednesday.

His position was backed in by the Business Council of Australia and Ai Group.

The extent of the capital gains tax changes in the Budget surprised many who thought they would be limited to housing.

Instead, the 50 per cent discount on capital gains will be replaced with a new inflation-based discount and a minimum 30 per cent rate on the taxable portion across sales for all asset classes.

This has sparked fury among fast-growing start-ups and small businesses, who fear they will be hit with big tax bills.

Mr McKellar wants to see the government “pull it back” to housing alone.

“What is the problem that the government is trying to address? They’ve articulated that they are concerned about housing affordability,” he said.

“That’s where their concern is. So, if they focused on that, then it’d be a very different situation.”

Commonwealth Bank chief executive Matt Comyn – who has previously voiced his support for changes to CGT on investment properties – has also said he doesn’t think other types of assets such as shares or business investments should be swept up.

“There’s a big difference in my mind between sort of passive asset accumulation versus productive capital or risk taking,” he told ABC’s 7.30 on Tuesday night.

“If I’m just accumulating an asset and I’m passively holding that versus I’m investing in a startup, a founder, a business, a junior explorer, I think that’s quite different, and I don’t think we want to change the incentives towards risk and enterprise and innovation.”

Business Council of Australia boss Bran Black said the changes didn’t meet the test for “responsible capital gains tax reform” and were being “rushed through Parliament in isolation” instead of as part of a broader package.

“These changes go well beyond housing and increase the tax burden on business investment across the board,” he said.

“Reform should encourage investment, not discourage it, and any revenue raised should be put to work lifting productivity. This does neither.”

Ai Group chief executive Innes Willox warned the changes were “fatally flawed and amount to economic self-harm”, and would hurt businesses of all shapes and sizes across all sectors.

All four were part of last year’s economic roundtable, which backed the need for tax reform.

But Mr McKellar said it never envisaged higher taxes on business gains.

“At no point, at no point was it discussed that to encourage stronger business investment, we need more taxes on business investment – and that wouldn’t make sense,” he said.

“If this was parcelled up with other changes, you know, if we were cutting the company tax rate to 25 per cent, if we were addressing marginal tax rates on the income tax scales, if there was something else in terms of a broader business investment allowance, then there’d be swings and roundabouts, there’d be carrot and there’d be stick.

“This is all stick and no carrot, and that’s the problem.”

Dr Chalmers rejected that view as “completely and utterly wrong”.

He also said people should have known what was coming in the Budget because the Government had flagged for months it had an appetite for reform.

Small business advocates COSBOA want the threshold for existing capital gains tax concessions lifted so they extend to businesses with a $10 million turnover, in line with the tax office definition, instead of the current $2 million.

Dr Chalmers hinted that he was open to this suggestions while ruling out the idea of narrowing the changes to housing only.

“There are legitimate issues when it comes to startups. There’s a legitimate conversation going on with the small business sector, for example. But it’s important that we apply this change broadly so that we don’t introduce another layer of distortions into our economy,” he said.

“We want people making decisions based on good investment in economic and productivity outcomes and not just chasing the best tax distortion that they can find in the system.”

COSBOA, ACCI, Ai Group, the Tech Council and the National Farmers Federation are among the business groups the Government is now consulting over mitigating broader impacts of the changes. The Business Council, which represents larger companies, is not.

Mr McKellar cautioned his colleagues that they needed to keep the broader perspective in mind and not be satisfied with a fix for their particular part of the economy.

The government is pushing ahead with the sweeping changes in legislation that will be put to Parliament on Thursday, bundling the capital gains and negative gearing changes up with the working Australians tax incentive and a new $1000 standard deduction.

It wants to push it quickly to a vote on these “core elements” in the Lower House – Dr Chalmers hinted that could be as soon as Thursday – and hopes to pass it through the Senate when it returns in the final weeks of June.

Arrangements for carve outs, wherever they land, won’t be legislated until later, although Dr Chalmers said this would be “weeks and months, rather than months and years” away.

But the Coalition is pushing for a lengthy committee examination of the legislation, which it hopes to use as a roadshow highlighting anger with the changes, as it did in 2019 with Labor’s franking credits policy.

Shadow treasurer Tim Wilson accused the government of “desperately trying to rush (taxes) through the Parliament because their budget is falling apart like a wet Woollies bag in a rainstorm” while deputy leader Jane Hume said it was clear Labor didn’t want to hear about the plight of small business.

“The idea that you could ram this through with the help of the Greens is anathema to what it is that the Senate is here to do,” she said.

Mr Wilson and Opposition Leader Angus Taylor used Question Time to pursue Mr Albanese over his claims the CGT discount would revert to the pre-1999 system when it doesn’t include the ability to average taxable capital gains income over five years. Leaving out the averaging means people can get hit with a large tax bill in the year they sell their asset, potentially pushing them up a tax bracket.

“This is not the pre-99 situation. It is a completely different thing,” Mr Taylor told media at a cattle farm outside of Canberra.

“The government has lied. They lie every day. Their Budget is full of lies. It was higher taxes, higher spending, less houses, hurting every single Australian.”