Treasury advice led the Albanese government to broaden capital gains tax policy beyond housing

The Albanese government initially intended to confine the capital gains tax changes to housing, but was advised by Treasury to broaden the increase to all asset classes, a move that has it locked in battle with the small business sector and investors.

As Prime Minister Anthony Albanese refused point-blank to consider any changes to the CGT policy other than the already-flagged carve-out for tech start-ups, sources confirmed the policy was broadened beyond housing less than a month before budget day.

Before the government accepted the Treasury advice, it was hinting heavily that the then-speculated CGT changes would apply only to residential housing. Dan Peled

As detailed this week in the Treasury advice released by the government, the department advised the Expenditure Review Committee that if a reduced CGT rate applied only to housing, investors could set up companies to circumvent the rules.

This was subsequently debunked by experts who said it would be too complicated for most, and the practice could be stopped by anti-avoidance tax rules. Broadening the application of the change also allows the government to raise more revenue.

The decision to abolish the 50 per cent CGT deduction for assets held for at least a year, replace it with the pre-1999 inflation indexation model, and apply it to all assets has muddied the government’s budget pitch about helping young people buy a home.

It has outraged the SME sector, which claims to be collateral damage from a budget that was supposed to be about housing, and has underwhelmed younger voters at whom it was aimed, especially those investing in shares, cryptocurrencies and ETFs as a way to try to build a house deposit.

Anthony Albanese pictured in this digitally altered meme faces a concerted social media campaign against his CGT changes.  u/frankgreeff_ on Instagram

Before the government accepted the Treasury advice, it was hinting heavily that the then-speculated CGT changes would apply only to residential housing.

“The treasurer has made public statements, and I have as well, and I think the prime minister has, about examining the intergenerational issues affecting housing in Australia,” said Finance Minister Katy Gallagher in mid-February, as budget deliberations were in full swing.

“We’ve been clear on that. We are interested in a discussion on the intergenerational issues around housing.”

Amid growing calls for further carve-outs from the CGT change beyond just tech start-ups, Albanese remained adamant. “No,” he said when asked on Perth radio whether he was contemplating further change.

As reported by The Australian Financial Review, the government, with the support of the Greens, intends to rush the legislation for the CGT increase and negative gearing curbs through parliament before July 2, when it rises for the winter break.

This tight deadline leaves time for a cursory Senate inquiry at best, something that has angered the Coalition and the teals.

“Labor refused to take these policies to an election. They are now refusing to give time for scrutiny in the parliament and outside of the parliament,” said Opposition Leader Angus Taylor.

“They are frightened of small business people saying this is not good enough. They are frightened of Australians saying this is a government that simply doesn’t understand what it is doing. So they are going to try to rush it through.”

Independent Allegra Spender said there were genuine concerns with the application of the CGT changes.

“Rushing this through will only result in bad policy, unintended consequences and less likelihood the changes will last,” she said.

“The government can’t expect community support for tax changes that are sprung on them without proper engagement on concerns.”

In his official reply to the budget on Wednesday, shadow treasurer Tim Wilson launched a “Stand with Small” campaign, which, he said, would “back the self-starters of the nation and to get their input about how our economy needs to be restructured”.

Wilson pledged that a Coalition government would introduce a Small Business Act that would include a single national definition of what constitutes a small business and legal maximum payment terms to small businesses from government and big business. It would also include a right to be heard.

“Each new law should require a small business regulatory impact statement, and provide a pathway for feedback and where small businesses should also be heard – from the RBA, ASIC, the ATO and Fair Work,” Wilson said.

There will also be new and expanded minimum requirements for government procurement that must come from small business.

“We will replace Labor’s pessimism with Liberal optimism. A nation where the taxpayers are respected, hard work pays off, and Australians feel in control of their lives,” he said.