Paul Smith and John Kehoe

May 26, 2026 – 8.00pm

Canva co-founder Cliff Obrecht and NextDC chief executive Craig Scroggie are the latest business leaders to call on the government to rethink its decision to replace the 50 per cent discount on capital gains with an inflation indexation model, arguing it will kill innovation and risk-taking in Australia.

Their comments came as economists who broadly support Labor’s overhaul of CGT urged the government to fix flaws in the policy that would overtax sharemarket losses and one-off profits, amid growing angst that the budget changes will deter investment in new ASX listings and capital raisings.

Canva co-founder Cliff Obrecht and NextDC chief executive Craig Scroggie are the latest business leaders to call for a rethink on the government’s CGT changes 

Billionaire Obrecht said that despite being a former union member, teacher, fan of taxation and lifelong Labor voter, he opposed the Albanese government’s CGT changes.

“I think it’s very short-sighted to cap innovation and kill the next generation of Canvas or Atlassians with short-term policy,” he told Commonwealth Bank of Australia’s AI conference on Tuesday. “Let the flower grow to at least be knee-high before you start taxing the crap out of them.”

An analysis by former Treasury tax official Geoff Francis shows that under the government’s CGT changes, investors with a typical diversified portfolio where one-third of shares underperform inflation will face real effective capital gains tax rates of between 42 per cent and 65 per cent.

These tax rates are significantly higher than what Treasury calculates for a single stock or an index fund. The anomaly is largely due to Treasurer Jim Chalmers’ refusal to index losses to inflation and failure to enable real losses – where stocks underperform the inflation rate – to be offset against real gains.

Scroggie told The Australian Financial Review he was hopeful the government would make a sensible compromise on its CGT changes, which constitute a broken election promise.

“It’s always disappointing when the government campaigns on one thing and doesn’t have a mandate for something as significant … and they are prepared to try and jam it through,” he said.

“We need a system that encourages innovation and then encourages investment. This transitional moment, from an infrastructure investment point of view, is probably the single most significant investment cycle in modern history. Are we really going to tax ourselves out of it?”

The government will introduce draft laws into parliament this week to overhaul CGT and limit negative gearing to existing investment properties and new-build homes. It wants to ram through the legislation, with the support of the Greens, before parliament breaks for winter in July.

More exemptions

On Monday, Prime Minister Anthony Albanese indicated that the government may exempt more small businesses from the CGT changes beyond those with revenue below $2 million that are already exempt,

It will make any amendments such as this in the Senate and try to avoid a parliamentary inquiry into the biggest tax changes in a quarter of a century.

In addition to indexing capital gains for inflation, Labor will impose a minimum tax rate of 30 per cent on real gains. However, real profits and losses from shares won’t be treated evenly. Only nominal losses, where the share price declines below the share purchase price, will continue to be permitted to be offset against real gains.

Chile, one of the few countries in the world to use an inflation indexation model for capital gains, allows real losses to be offset against real gains.

Labor’s model will penalise investors who spread their investments and record large gains on some stocks and big losses on other stocks, such as volatile biotech, technology and mining exploration companies.

NextDC chief executive Craig Scroggie and McKinsey partner Angus Dawson on Tuesday. Scroggie is hopeful the government will make a sensible compromise on its CGT changes.  Dominic Lorrimer

In the budget papers, Treasury cited e61 Institute senior economist Matt Nolan’s analysis of the existing 50 per cent capital gains discount as evidence for why it was better to move to an indexation model to compensate investors for inflation.

Nolan said on Tuesday that although he supported indexing for inflation across the tax system, Labor’s CGT proposal had serious flaws.

“If they’re not going to allow the real component of losses, that very much betrays the principle and can lead to strange distortions. It would penalise risk, so it does become quite a problem. You need to treat the upside and downside on gains and losses symmetrically.”

Stockbrokers warned that retail investors in companies selling shares via initial public offerings and capital raisings, which often experience big swings in share prices, would be heavily disadvantaged in Australia.

Morgans Financial chief executive James Macaulay said the CGT proposal would punish early-stage companies and make it harder and more expensive to raise capital from retail investors.

“It is steering investors away from individual shares and into passive ETFs,” he said.

Exchange-traded funds internally net off gains and losses for investors.

It is understood Treasury is worried that allowing losses to be indexed to inflation and offset against real gains would be a revenue risk to the government. Investors could accumulate the indexed losses and offset them against profitable investments to reduce their tax liabilities.

Nolan said this concern was misguided.

Chalmers stands firm

In a statement on Sunday, Chalmers said: “Consistent with the current arrangements, only nominal losses can be deducted. This approach is consistent with how indexation worked originally.

Advertisement

“The new arrangements improve the overall efficiency of the tax system by more accurately compensating for inflation.

“The government has introduced new loss refundability measures to support risk-taking and boost productivity.”

Francis, a former Treasury assistant secretary, said the return to the pre-1999 Hawke-Keating, asset-by-asset approach to inflation indexing for CGT would overtax investors.

“The tax changes in this budget … will worsen Australia’s economic performance,” he wrote in the Financial Review.

“Real inflationary losses from one investment cannot be offset against gains on another. This means that any diversified portfolio of shares or ETFs where some assets return less than inflation ends up being overtaxed compared to the rates on labour income.

Advertisement

“The overtaxation increases with investment risk. This was a known problem with the Hawke-Keating approach.”

Economist Chris Richardson, who broadly supports replacing the 50 per cent CGT discount, urged the government not to rush the legislation before the full implications were understood.

The refusal to allow investors to average their “lumpy” capital gains over five years, as under Paul Keating’s pre-1999 model, should be reconsidered as it would temporarily push investors into higher income tax brackets, he said.

“A one-off capital gain can be taxed at a rather higher rate than if its profits were correctly spread out over the time they were earned,” Richardson noted in a post on LinkedIn.

“The second problem is that it appears the intent is to tax winners (real gains) but not allow offsets for losers (real losses). If that is true, then the Treasury revenue forecasts look too low.”

Treasury forecasts that the government will raise $3.6 billion over four years from the changes to negative gearing and CGT. Chalmers said more than $40 billion could be raised over a decade, plus an additional $40 billion-plus from a minimum 30 per cent tax rate on discretionary trust distributions.

Advertisement

Nolan also expressed concern that Labor’s proposal excluded the pre-1999 feature of enabling investors to smooth their capital gain over five years, a system known as “income averaging”.

“Gains are lumpy and tax rates can become much higher, so the lack of averaging is a big mistake,” he said.