Unisuper chairman, Chris Cuffe, is the latest to demand reform of Australia’s capital gains tax (CGT) discount, arguing that Australia’s low inflation rate has made the discount is “extremely generous” and calling for a return to the indexation system that applied when CGT was introduced in 1985. From The AFR:
“It’s time to recognise that after 18 glorious years of CGT heaven, it is no longer appropriate,” Mr Cuffe wrote in his investor newsletter Cuffelinks on Thursday.
He argued inflation was far lower than it was in 1999, when the CGT discount was introduced.
“For much of the late 1980s, inflation was around 8 per cent, and then in ‘the recession we had to have’ in 1991, it fell significantly and then rose again.
“By 1999, it was approaching 6 per cent. It is now closer to 2 per cent. With inflation closer to 2 per cent, and likely to stay low for many years, the 50 per cent discount is extremely generous for assets realised after a relatively short period”…
“There is no justification that someone can flip a property after a year and be taxed on only half the realised capital gain,” he said. “Let’s remove this investor tax incentive and give our children a chance.”
Cuffe’s arguments are similar to the recommendations from Deloitte, which called for the CGT discount to be pared-back on the basis that it is “too generous”:
Our conclusion? The current CGT discount is too generous, to the extent that it undermines the very principles of this nation’s progressive personal income tax system. It’s time for a change. Reform of the concession is long overdue.
The Parliamentary Budget Office has also previously estimated that cutting the discount to 40% would provide a four-year Budget saving of $2.3 billion, whereas cutting the discount to 25% would save $5.7 billion over four years, and removing it altogether would save the Budget $10 billion. In a time of deep Budget deficits such savings are money for jam.
Let’s hope the Turnbull Government bites the bullet and finally unwinds this giant tax distortion.
