Talk about non-core promises: the new Tory-Lib Dem Government has shocked conservative commentators by embracing a massive new tax. British media have reported new Chancellor of the Exchequer George Osborne plans to increase capital gains tax on ‘non-business assets’ by up to 40-50%, from its current comparatively small level of 18%.
The plan to increase CGT was a major part of the Liberal-Democrats election manifesto — but didn’t feature in Tory plans until the two parties began negotiations on forming the current coalition government.
In its Lib-Dem form the plan was savaged by the UK’s conservative media as an absurdity. One Times commentator, in an op-ed recycled locally by The Australian, declared a vote for the Lib-Dems would be a vote for chaos given their plans to fund a lift in the personal tax threshold with other tax rises.
“The ‘Dems’ want to pay for this £17 billion tax break by hitting pensions, mansions, capital gains, whatever they can find. Ouch.”
But desperate times and ambition for power have bred desperate measures: the Tories have not only accepted the CGT but also a plan to increase the tax exemption rate to £10,000 while dumping their inheritance tax exemption for assets up to £1 million. The tax would also apply at a much lower profit threshold of £2,000, rather than at the current rate of £10,100.
The move has perplexed conservative pundits in the UK who have accused the government of impacting on the “attractiveness of the UK” to investors and engaging in “legalised theft”.
The federal government’s RSPT suddenly doesn’t look quite so threatening, especially not to UK investors in BHP and Rio Tinto who are staring at a significant increase in their CGT bills from the Tories, even on earnings currently exempt from the tax.
There is speculation in Britain that the new tax may result in a ‘fire sale’ of assets; a wholesale clean-out of investment property and second homes would push market prices for first home buyers down. The UK Telegraph quoted Osborne responding to the criticism that the proposal hadn’t appeared in the Tory election manifesto by saying:
“I think it would have been pretty clear for anyone coming into office that there was a substantial problem with capital gains tax and avoidance of income tax.”