Even those with a mere modicum of economic understanding would know that to prosper, an economy needs an efficient allocation of resources. People should be able to move to the jobs that offer them the highest wages in return for their skills and effort. Raw materials should go to those who are willing and able to pay the most for them. Smilarly, capital needs to move to those businesses that offer the highest expected return-for-risk.
So, let’s consider the impact the removal of the CGT discount announced by the Albanese / Chalmers Labour Government in the May 2026 budget speech will have on capital allocation.
Say you bought an asset for $100. It rises $200, You sell, giving you a capital gain of $100. At the top marginal rate (45% income tax and 2% Medicare levy) you pay $47 in CGT. After tax, you have $153 to reinvest. So, just to get back to your pre-sale position of $200, you need to get a capital gain of 31% on reinvesting that money.
Unless you’re in financial stress, in effect a forced seller, why sell? In most cases it would be foolish to sell, which will obviously cause the volume (and value) of shares and properties sold after the change, to plummet. And what will be the effect of that?
It will cause government’s CGT tax revenue to drop significantly and our economy will suffer. It will suffer because businesses offering a higher return-for-risk will struggle to raise the capital needed to fund their growth, and more businesses going through temporary financial stress will not get through it – because they won’t be able to raise the necessary capital to keep creditors at bay.
Since a smaller economy leads to government collecting less revenue, it is inevitable that government will increase other taxes (income, GST, et al) and increase money supply – which will further depress the economy, further reduce the buying power of our money and lead to private sector job losses, which government will try to offset by increasing employment in the public sector, which obviously adds more costs to government.
How will it fund this increase – that’s right – by increasing taxes even more and by further increasing money supply. And that will continue until we hit rock bottom, until we become another Venezuela, Zimbabwe, or Soviet Union. Is that what we want? Surely, not.
The question that puzzles me is whether this tax change shows our rulers to be economically illiterate or to be intentionally leading us to poverty. Whichever it is, we need to turf this bunch out at the next election and elect those whose policies will improve our well-being.We need an efficient allocation of capital to prosper as a nation. We currently don’t have it, and our current government appears intent on undermining it. The policies of a Classic Liberals Australia government will ensure we have an efficient allocation of capital.