Michael Pascoe writes:

A favourite aphorism states that
the answers you get depend on where you stand when you ask the
questions. No need to guess where Peter Costello was standing when he
whistled up his once-over-lightly tax study – in the pockets of
investors and the well-paid.

How else can you explain a process
that results in the top tax rate and capital gains tax as the hot tips
for change in next month’s budget?

The top tax rate has been in
play ever since Malcolm Turnbull started using it to show up the
Treasurer’s performance. But a further sweetheart deal for investors on
the capital gains front would have to be a real surprise. The SMH perceives a strong hint though that the investor class will indeed come out winners with a further cut in CGT.

The
Warburton/Hendy effort was never about tax reform. Even “study” might
be a generous term for what is really little more than a quick and not
very meaningful comparison of OECD tax rates. But Costello seized on
the study’s findings that Australians allegedly pay relatively high CGT
on property and shares as vindication of his very generous CGT
concessions introduced in 2000 after the Ralph report.

That
50% concession for CGT played the major role in sparking the
residential real estate investment bubble, with the long-lingering
after-shock of miserable housing affordability. But as well as making
obvious that concession is here to stay, The SMH reports
Costello as saying: “One of the things that other countries do that
Australia doesn’t is they step down their capital gains tax rates
according to the period that you’ve held the capital asset … one of
things you could consider would be different treatment for longer-held
assets”.

Australians also paid the third-highest top capital
gains tax rate for shares, and highest top marginal tax rate on
interest income.

Right – so the CGT rate of 24% for taxpayers in
the top bracket now could slide if an asset was held for a longer
period of time. Hang on to your shares or holiday house for, say, three
years and it might drop to 20%, 15% after five years, 10% after 10, or
something like that.

Just remember Tony Harris’s most valuable
law: everything is capitalised. That means, any tax concession or
subsidy ends up being reflected in the price.

Peter Fray

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