Tax experts: Unwind CGT discount, don’t use super for housing

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By Leith van Onselen

The peak body for the tax profession has thrown its hat into the ring on housing policy, calling for the pre-1999 treatment of capital gains tax (CGT) to be reinstated and opposing the proposal to allow first home buyers (FHBs) to access their superannuation to purchase a home. From The AFR:

Robert Deutsch, the Tax Institute’s recently appointed senior tax counsel, said the 50 per cent discount had reached its use-by date…

“[The CGT discount] was designed to compensate for the move away from indexation but if one looks back over the last 10 years the rate of inflation has been remarkably low”…

“A blanket discount is probably therefore much too generous at this point. Computer technology makes cost base adjustment calculations to reflect CPI changes an easy two-minute task”…

“Super was originally designed with the intention that monies raised through the superannuation system would be made available for the purposes of peoples’ long-term retirement”…

“And with the aging population and advances in medical technology that is going to be for most people a very long retirement.

“They will need a large nest egg when they retire and with current rates of contribution at 9.5 per cent are probably not going to get us there.

“But if you now introduce a mechanism where people are allowed to withdraw money from super to pay for housing needs, we’ll diminish that nest egg substantially… To me it’s a crazy idea”…

Deutsch 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.

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They also echo recent sentiments from Unisuper chairman, Chris Cuffe.

The Parliamentary Budget Office has 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.

By contrast, allowing FHBs to access their super for housing would not only be self-defeating from affordability perspective – since it would raise prices (other things equal) – but it would also put people’s retirement nest eggs at risk and could blow a massive hole in the Budget.

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The Coalition would be wise to heed the Tax Institute’s advice.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.