Chalmers Downplays Revenue from Investor Tax Changes
Treasurer Jim Chalmers has cautioned that proposed changes to investor tax breaks will not generate 'a huge amount of revenue' over the coming few years. The remarks come as the government considers reforms to capital gains tax (CGT) and negative gearing rules.
Deloitte Warns of Delays in Budget Reforms
According to Deloitte, limiting changes to new investments would 'severely delay' necessary budget reforms. The consulting firm estimates that applying a reduced 33% CGT discount and abolishing negative gearing only to new investments would generate just $500 million over four years. In contrast, phasing in changes for all existing investments over three years could raise $18.8 billion, which could fund income tax cuts for workers.
Potential Benefits of Broader Reforms
Stephen Smith, lead partner at Deloitte Access Economics, said the additional revenue could fund a 1 percentage point cut to the lowest marginal tax rate, giving a worker earning $45,000 an extra $500 annually. Alternatively, it could support more comprehensive income tax reform, such as raising the tax-free threshold to $35,000 with a flat 33% rate up to $300,000.
Transitional Arrangements Under Consideration
Chalmers has indicated that any policy change would include transitional arrangements to protect past investment decisions. Smith argued that a transition period is crucial to avoid unnecessary dislocation, allowing investors to adjust their holdings. 'To be blunt, if it doesn't work for you after you lose the 50% CGT discount, then you can sell your asset before that takes effect,' he said.
Budget Outlook
Deloitte's pre-budget analysis predicts smaller deficits than previously estimated, thanks to higher commodity prices and inflation boosting company profits. Savings from NDIS reforms could further improve the budget, but Smith described the budget as 'structurally flawed.' He emphasized that the government's decisions on how to use the savings will determine the budget's bottom line.
