Welcome to Firstlinks Edition 662 with weekend update

I agree completely Ooompaloompa ( sorry if I left out an o ) Generosity is badly lacking in view of life. We have had a rails run. I’m an ordinary bloke who has certainly had rewards in and the track for our grandkids is obviously uphill!

maybe you should give some of the money you have gathered from the 'the system that you have done so well from' to your kids who are paying ridiculous rents and trying to save.
That is intergenerational wealth.
All Chalmers did was tax more and saddle your children with over $1 trillion in debt.

Agreed, well said.

Your position is justified given that you have already realised the benefits of your long-play strategy and you sound like you’re financially comfortable. Congratulations. You might even be one of those “financially entitled pratts” you refer to. What about those who haven’t got there yet but who have been sacrificing, like you did, to set themselves up? I know I’ve been working towards getting to where you claim to be for many years but my financial situation is far from secure.

I have to question if you’re so well off why you don’t help out your hard-working children to stump up a big deposit to help them into a house? I would. It is better than letting Labor take it off you and blowing it like they do with all the other free money that falls into their lap. They seem to be so perplexed about where it all comes from but they have no trouble spending it and always go looking for more. Easy come, easy go hey Jim?

There are ways for older Australians to distribute their wealth as they choose and to better the lives of those they care about without a spend-happy Government garnishing that money and wasting it. Do not fall into the trap of thinking “I’ve done well enough - let the Government take it off me to help the next generation”. They won’t. They’ll spend it on consultants or attending interstate birthday parties and calling them ‘business meetings’ or throw it at groups to win extra votes. Please don’t be apathetic or philosophical about how bad the underlying thinking is for Labor to arrive at this position. By all means change tax policy moving forward but don’t steal off the people who relied on the existing rules. It’s like driving 60 km/h in a 60 zone then getting a ticket because Govt decided that 60 was too fast and dropped it to 40 then issued fines to everyone captured driving above 40 for the last 20 years. It is nonsense and bad governance. Shame Labor has such a fat majority it can do what it wants and it is virtually impossible to blow it from here.

What about the in between generation? What about the 35 - 45 year olds who have purchased houses at elevated prices and sacrificed to do so. They might be working multiple jobs to raise children and save for the future. They might have a share portfolio to pay for school fees. They are likely not receiving many government benefits but paying a lot of tax. These people can't afford luxuries but are trying to save to have a good retirement.

I feel the tax changes disadvantage those who are trying to get ahead while faced with low wage growth, high cost of living, declining living standards. They're likely wage earners who are already paying a lot of tax on their incomes. Investing is the only way to start to get ahead in the high cost of living environment. These people won't get to be comfortable just by paying off a $700k mortgage. By comfortable I mean regular family holidays, a new car every 10 years and regular dining out.

How will these tax changes help them at all?

Bens, agree with what say but also generations with/had children in child care, now for great number of years, benefit from high childcare subsidies that were not available to the now retired. Whilst they may think paying much tax, they are also receiving a benefit from it. Family income cut-off is $535,279. That's very generous so not all bad for the young. If 2 children in care under 5, there is higher rate cutoff. We could barely afford 1 in childcare just to keep my place on work ladder to climb tree to better things, let alone 2 in c/care at same time. Not complaining, just presenting another side to debate.
I at school at 3 . 5yrs as was possible, no harm to me us (older siblings brain-boxes in life) so incline towards education system expansion to lower age intake in existing system with a few tweaks of extra kindy teachers & demountable classrooms where space at premium in cities, perhaps in the country some have more generous grounds to add permanent rooms. Such longterm Govt investment more likely to turn us into clever country again than billions on childcare subsidies where cost progressively increases & particularly for For-Profit childcare which basically means, ALL taxpayers are subsiding a privately run business. A well-respected for-profit centre can pretty much charge what it likes due to demand & taxpayers are subsiding part of that business.

"Time we allowed our next generations a fair go."

That would be fine, if that's what the proposal was.

In actual fact, this is a proposal to CREATE generational inequality by taking away from Gen X, Gen Y, and Gen Z the benefits that Baby Boomers have had for at least the last 25 years.

This change won't hurt Baby Boomers all that much. If you're in retirement it's no great drama to switch predominantly to income investing, which the new CGT schema doesn't hit nearly as hard as growth investing. And if boomers already have investment properties, it's grandfathered in for negative gearing. And if you want to offload assets at high prices before the changes kick in, you absolutely can unload assets at the old CGT 50% discount rate instead of the inflation adjusted rate (for part of your asset growth - assets you hold past July 1 2027 will have two different CGT regimes applied to different parts of it).

This is just another case of the Baby Boomers getting all the benefits, and the generations that follow don't get them. ;)

I don't begrudge the Boomers getting those benefits. I do think that it's stupid both politically and in terms of policy to take those benefits away from subsequent generations - in the name of "intergenerational equity"!

I do agree with removing negative gearing (with grandfathering) though, I think that was a change whose time had come as part of tackling housing affordability. And I could see a case for changing the CGT *for property investors*. The problem is that the government went a lot further than that, and that's where they are creating problems.

Everybody has been diverted from the real problem with housing.

1. The Government has failed miserably to meeting it's housing supply targets
2. Deamand is increased by the migration level again much higher than in the past and higher than the government target.

Less Demand. Higher supply, Economics 101 - higher prices and higher rents.

Jim Chalmers has done another excellent job in obscuring these facts and putting the focus on tax changes. This will dampen housing prices, but do nothing for supply or demand i.e rents.

Put simply it is a measure to increase taxes and the intergenerational equity debate a convenient smokescreen.

I had a look at house prices on the Sunshine Coast where I live. House prices have been driven by population growth (r=0.9) and by interest rates (r=-0.7). House price have more than doubled in past 10 years initiated by low mortgage rates in the early 2020s. Remember low interest rates were supposed to benefit Gen Z but had opposite effect. Building costs have gone through the roof due to a shortage of skilled labour and a lot of materials now have to be imported because manufacturing costs are too high due to ridiculous energy prices.Try getting a tradie here for less than $300 per hour. It is estimated that as high as 40% of building costs are development costs and other government taxes. Cutting negative gearing will only push up rents. And changes to capital gains tax will only drive investment overseas. Gen Z are left with a debt of $1.25 trillion. Cut immigration, red tape and net zero to start with!

I was a Govt employee until I hit 40. I then left to work as a self-employed business consultant. I earn a bit more than my Government days but not hugely so. Certainly much less than our dear politicians.
I set up a company to protect family assets and have a family trust that hasn't ever realised the benefit of being able to distribute large amounts of income to others. I have children who are under 18. As a Govt employee I consumed no additional services. Work gave me a phone, I had no website, paid no company fees and did my own tax return. As a consultant I pay thousands for additional services including an accountant, website, annual ASIC fees, PI Insurance, stationery and IT equipment and my own professional membership fees to name a few. In short, by taking considerable risk to leave a safe Government job I feel I make a much bigger contribution to the economy. And now I am branded a tax cheat because I have a discretionary trust and some of my income is franked despite my consultancy paying more tax and other fees to the Government than I ever did as an employee. I still pay personal income tax also. I have a measly SMSF as I haven't been able to pay super some years. And that apparently makes me part of the rich elite.
So yes. I feel somewhat aggrieved. Not because the rules are changing but because they operate with a degree of retrospectivity. Some rules have been overly generous for those lucky enough to exploit them. Where they have been abused by the truly rich there are sharper tools that can be used to clamp down on this – not just smash everyone who is negatively geared or has a discretionary trust. For example, Government could tax discretionary trust distributions of more than a certain amount (say $50,000) at a higher rate so they can’t be used to move large sums but can still be used for legitimate protection and modest income allocation.
I have set up legitimate structures to use the rules of the day and have been paying for them for 10 years without ever receiving much benefit. That benefit was to come later as I slow down and look to retire. Let tax rules change - however I strongly believe in grandfathering. As Mark says in his article, ‘we sacrifice today in the hope of that sacrifice paying off in the future’. The Government of the day is deciding how it will seize and spend the net benefits I have been slowly accruing through sacrifice and deferring rewarding myself. I take the risk and they blow the rewards. Grandfathering would not take that from me and I can adjust future actions to comply with the new tax rules.
The current Government is branding everyone deriving some form of income with differential taxation treatment as a cheat while ignoring all of the additional costs, risks and sacrifices most have made to be in that position. Risk and effort must be encouraged and rewarded. This Government is not addressing wealth inequality. It is engaging in sanctioned theft and eroding any incentive for people to take risk and try to make something of themselves.

John, a point of view so clear & very well presented. Oh for the boffins of Canberra to read it ( but would they be able to understand it?).

Labor's justification for changes to CGT and negative gearing are framed as being justified to improve home ownership prospects for younger people. Labor's catch cry: "intergenerational equity"!

Putting aside the fact that supply, high immigration and building cost inflation are primarily to blame, how is intergenerational equity substantively improved by denying present and future generations the very mechanisms to build the wealth of preceding generations? How does grand fathering those very same advantages become framed as equitable? Surely to be equitable such changes should apply to all forthwith? (I guess too many politicians with multiple investment properties!)

Young people increasingly are turning to "rent investing" and higher growth shares to save for a house deposit. Labor's tax changes are a significant hand brake to them. Even if a new property is negatively geared, the ability to offset losses against salary has been denied, only allowed now to be offset against property gains!

IMHO it's largely an opportunistic tax grab, under the cloak of intergenerational equity. The fact that the changes (CGT) apply to non housing assets is proof of this. The sad fact is, despite Labor's self promotion, it does very little to help younger generations get ahead.

Labor's growing gross debt (that's the one interest payments must be made on) and spending problem are the biggest intergenerational inequity being inflicted on the young!

According to John Kehoe (Economics Editor at the AFR) this budget delivered (Chapter1) of Chalmers' long desired "values-based capitalism" (Socialism in reality. A pig wearing lipstick is still a pig!)

A few take outs:
- The 2026 budget is characterised by tax increases on the wealthy, entrenched budget deficits and $18B of extra spending in the next year that will not be welcomed by the Reserve Bank of Australia as it battles inflation.
- it fails to meaningfully reduce the nation’s over reliance on personal income tax, despite the opportunity to do so immediately through game-changing tax increases on assets
- will do nothing to increase investment and productivity, which is the only sustainable way to lift people’s living standards.
- The piddly tax offset of up to $250 for wage earners from 2027-28 is not a meaningful attempt to fix the income tax bracket creep that will eat away at the pay of working-age people over the coming years.
- Income tax will account for almost 55% of total tax revenue by 2029- 30, the highest since the turn of the century.
- To make the budget numbers add up, Chalmers is counting on delivering a massive $37.8B in savings over 4 years from the out-of-control $52B NDIS. This year the NDIS is growing at 10% (above the government’s 8% goal). But next year the budget is counting on NDIS cost growth suddenly plunging
to 1% and averaging only 2% over the next 4 years. This looks doubtful (courageous perhaps or duplicitous to make the budget numbers look better?)
- The budget injects an extra $18B of spending in 2026-27, including $8.7B of net policy decisions, NDIS blowouts and other automatic spending increases linked to inflation.

100% correct. So called "intergenerational equity" is a smokescreen. Simply, tax and spend !

Minimum 30% tax rate on capital gains is very heavy handed and is a good example of this government’s socialist bias.

Taxes are going up and budgeted debt is going up too. WTF? This government is taking us downhill.

They should be incentivising personal saving and investment. Why not a tax free savings account for first home buyers regulated so that it can only be used for a home deposit for example.

Also reduce income tax burden on workers and investors to incentivise hard work and saving.

I think the existing cgt rules are fairly evenhanded.

Finally if it is true that the government promised before the election to leave cgt and negative gearing alone then they should be required to call an election to let the voters ratify the changes.

Trevor, there is the First Home Super Saving Scheme. https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super/first-home-super-saver-scheme

Trevor,

"Why not a tax free savings account for first home buyers regulated so that it can only be used for a home deposit for example." - bringing up no tax on bank interest is an excellent point.

For bank interest, it's treated as nominal income. However, in the same year that you get 3% bank interest, you might get 3% inflation. Your earning in real terms from your bank account is zero.

If the government is serious about taxing only real gains, bank interest might be a good place to look at this next ...

"If the government is serious about taxing only real gains, bank interest might be a good place to look at this next ...":

Removing inflation from nominal interest so that only real interest is taxed would be easy enough for term deposits, where the principal is fixed; although the banking and tax systems are not set up to do it.

The inflation adjustment to monthly interest from accounts with balances fluctuating daily sounds administratively 'horrific'.

Dudley,

Re "The inflation adjustment to monthly interest from accounts with balances fluctuating daily sounds administratively 'horrific'." - as far as I am aware, the government still taxes people annually, and banks still produce annual statements of the interest earned for each bank account (which get picked up by the ATO for the pre-filling for your personal tax return).

It wouldn't be hard for either the banks, the government, or accountants to convert this nominal annual interest payment to a real annual interest amount.

I don't see where you feel this administrative horror is coming from ...

"administrative horror is coming from":

Write a script for calculating the annual inflationary part of bank interest where account interest is calculated daily and credited monthly.

Dudley,

Re "Write a script for calculating the annual inflationary part of bank interest where account interest is calculated daily and credited monthly." - why on earth would you do that?

It's irrelevant that it's calculated daily. What's relevant is the actual interest payments, which are monthly. So to do it precisely you'd calculate the real increase for the monthly income payments between the end of each month and the end of the financial year, which is very doable - we have computers. What I'd suggest the government do instead is just apply the annual inflation rate for the year to discount the total of the interest payments, which of course is much simpler for everyone and a very appropriate proxy.

"irrelevant that it's calculated daily."

Account balance changes daily, interest is calculated daily, credited monthly and adds to account principal.

Inflation affects the value of account principal which changes daily.

Your script is about interest, does not show how to calculate the daily effect on principal or how to calculate the daily inflation factor.

There are 365.25 days per year requiring many calculations per account per year. Computers could do it and report it and tax it - when adequately programmed.

A rougher method is to calculate something like the daily weighted average account principal within a tax year ATO declares a fudgy inflation rate for that tax year. Likely needs some weighting for days to end of tax year.
I'd like to hear from actuaries.

[ Does ATO pay for inflationary principal loss of accounts that pay little interest? ]

(Super Exempt Current Pension Income (ECPI) is used to apportion earnings during a tax year but super balances change less than bank account balances.)

Dudley, I literally have no idea what you are talking about. You seem to be living in a fictional world, or have different kinds of bank accounts than me.

In my world, for the banks I've banked with, the bank calculates the interest daily on the balance and deposits it into the account monthly, at the start of the month.

To discount for inflation, the government could just at the end of the year take the sum of the nominal interest paid during the year and discount by the inflation rate for the year.

This is not hard stuff.

"To discount for inflation, the government could just at the end of the year take the sum of the nominal interest paid during the year and discount by the inflation rate for the year.":

"This is not hard stuff.":

Then write the calculation.

Some examples:

What would the discount be where the account has $100 balance and $0 interest throughout the tax year?

What would the discount be where the account has $100 balance and $10 interest throughout the tax year?

What would the discount be where the account has $50 balance for first half of tax year, $0 second half and and $5 interest throughout the tax year?

“What would the discount be where the account has $100 balance and $0 interest throughout the tax year?

What would the discount be where the account has $100 balance and $10 interest throughout the tax year?

What would the discount be where the account has $50 balance for first half of tax year, $0 second half and and $5 interest throughout the tax year?”

Assuming 5% inflation over the tax year:

$100 balance and $0 interest throughout the tax year suggests that anything above $105 is a real gain and may be taxed at marginal rates-no extra tax payable in this case although in one model the $5 real “loss” could be carried forward to offset a real gain in the future (similar to the way capital losses can be offset against future capital gains).

$100 balance and $10 interest throughout the tax year again suggests that anything above $105 is a real gain and may be taxed at marginal rates-so tax would be payable at marginal rates on $110-105= $5.

$50 balance for first half of tax year, $0 second half and $5 interest throughout the tax year suggests that anything above $52.50 is a real gain (assuming that inflation in the first half year is half the inflation for the full tax year for simplicity, although a different model could be adopted eg. if quarterly inflation data was available)- in this case tax may be payable at marginal rates on $52.50-50= $2.50.

Correction:
$50 balance for first half of tax year, $0 second half and $5 interest throughout the tax year suggests that anything above $51.25 is a real gain (assuming that inflation in the first half year is half the inflation for the full tax year for simplicity, although a different model could be adopted eg. if quarterly inflation data was available)- in this case tax may be payable at marginal rates on $55-51.25= $3.75.

Dudley,

Re

"What would the discount be where the account has $100 balance and $0 interest throughout the tax year?

What would the discount be where the account has $100 balance and $10 interest throughout the tax year?

What would the discount be where the account has $50 balance for first half of tax year, $0 second half and and $5 interest throughout the tax year?"

In the current system:

Interest is all taxable. If interest is 10% (well done on getting that in a bank account) pay interest on the 10% ($10) at your marginal tax rate.

In an inflation-adjusted system:

You had $100 in your account for the year. If inflation is 3% for that year, inflation accounts for $3 of the $10 interest. You pay tax on $7 at the marginal rate.

If, more realistically, the bank interest was the same as the inflation rate - e.g. both are 3% - the $100 would pay $3 of interest. The inflation adjusted principal would be $103. There is no real growth - the interest just reflects keeping pace with inflation and the real value of your money not being reduced. In real terms you've made no additional income. You'd pay tax on the difference between $103 and $103, which would be zero.

As you mentioned, the bank calculates interest daily on the current value of the savings. It therefore knows the daily value throughout the year (and would have that in its records anyway, it's just data). It is therefore trivial for the bank to calculate the average deposit throughout the financial year. Use that as the reference point for calculating real gains. To use your example, if the average deposit throughout the year was $100 and the interest rate and inflation rate were both 3%, the real gain would come out at around zero (there may be slight differences because inflation may have varied throughout the year). If inflation was 3% and the bank interest was 10%, the real gain would be 7% and the person would pay interest on that.

So, to your third example, the average balance would be $25, the annual interest would be $5 or 20%, and if inflation was 3% they'd pay tax on the difference between the $25.75 (3% inflation) and the $30 (20%). Again, great work on finding a bank that pays 20%+ interest on deposits when inflation is 3%! :)

Presumably in this kind of system the bank would make these calculations as it has all this information anyway.

The above method simplifies it for convenience by using the average bank balance over the year and the net inflation over the year, whereas in reality the inflation may vary at a different rate than the bank balance. Since the bank calculates daily interest calculations anyway, it could apply the difference on a more granular level, e.g. in relation to monthly or quarterly inflation figures.

The simplest fix of all, of course, would just be to assume that bank interest rates follow inflation rates anyway over time, with bank interest being lower than inflation rates as inflation rises and bank interest being higher than inflation rates as inflation falls, so there's not much difference in most cases ... so don't tax bank interest.

"Correction:":

Yes.

Where the bank account balance at the end of each day varies:

Nominal interest:
= 1000000 * 1 * ((1 + 5%) ^ (1 / 365.25) - 1)
= 133.589112

Inflation (Imaginary) interest:
= 1000000 * 1 * ((1 + 4%) ^ (1 / 365.25) - 1)
= 107.386226

Real interest, difference method (Nominal - Inflation):
= 1000000 * 1 * (((1 + 5%) ^ (1 / 365.25) - 1) - ((1 + 4%) ^ (1 / 365.25) - 1))
= 26.202886

Real interest, ratio method (Nominal / Inflation) [ Inflation 0% results in divide by 0 ]:
= 1000000 * 1 * (((1 + 5%) / (1 + 4%)) ^ (1 / 365.25) - 1)
= 26.200072

"A rougher method is to calculate something like the daily weighted average account principal within a tax year ATO declares a fudgy inflation rate for that tax year.":

ATO already receives transaction data from banks, likely enough to know the daily balance of every account and to calculate the tax year average balance and multiply by the fudgy inflation rate to get the 'inflation discount adjustment'

Surprisingly the Commonwealth's total tax on interest is not published; lumped with other income.

Assuming $2T in bank deposits and 4% inflation rate, the Commonwealth rakes in $80G / y in tax on Imaginary interest.

"Assuming $2T in bank deposits and 4% inflation rate, the Commonwealth rakes in $80G / y in tax on Imaginary interest.":

https://www.apra.gov.au/monthly-authorised-deposit-taking-institution-statistics
Monthly authorised deposit-taking institution statistics March 2026 XLSX 326.72 KB
Published 30 April 2026

Table 4: Column G; Total residents deposits, Row 124 = 3,403,666 ($ million).

At 4% inflation rate, the Commonwealth would rake in $136,147 ($ million) / y in tax on Imaginary interest.

I think the changes to negative gearing, CGT, and Trusts are all a step in the right direction of addressing wealth inequality. We can see what wealth inequality and extreme greed is doing to other countries, especially USA, and this timely action may well reduce future social tensions.

There is still more the government can do, especially around taxing gas to benefit Australians. Norway shows the way and any steps in that direction are welcome in my opinion.

Yes, these changes impact me negatively but as a self funded retiree, but not extremely rich, I can afford it.i think it is morally wrong that my effective marginal tax rate as a retiree is less than my children’s marginal tax rates even though my income is higher than each of them.

Well said Jim. Addressing inequality through tax reform is hard and requires political bravery. In any reform there will naturally be winners and losers, however, on balance the proposed changes to negative gearing, CGT and trusts are reasonable and should be supported.

I understand the way you feel about having a lower marginal tax rate as a retiree than younger income earners but most of us older workers have been the younger, higher tax paying income earners our whole lives. If we have built enough wealth to not be reliant on a pension it is grossly unfair for Govt to attack us for having too much and giving it away to those less fortunate unless our wealth is clearly above what’s reasonably needed to live well. $100k net per person per year income in retirement is not a lot of money in Australia in 2026. For some, their rates and house and contents insurance could consume 20% or more of this. Now approaching retirement, I am comfortable still having to pay additional tax above certain limits but those limits need to allow me to live to a good standard - not as a pensioner. There needs to be some reward for the effort I’ve made over 40+ years to avoid relying on the pension.

"unless our wealth is clearly above what’s reasonably needed to live well."; how about "no" ? My money is MINE, no one came and gave me a free "first shareowner's grant" when I started investing, so they're in no position to decide how much I need "to live well". Gen X have made efforts over years too, to avoid relying on the pension, and I'll be darned if I have someone coming along to say "what can you do with $5 million that you can't do with $2 million ?" and an eye to take it off me.

"I think the changes to negative gearing, CGT, and Trusts are all a step in the right direction of addressing wealth inequality."

There will always be wealth inequality! It is not such a sin. The aspiration of wealth motivates people to be entrepreneurs and found successful businesses that employ others and pay taxes. Wealthy people who earn pay a LOT more tax. They even buy more expensive homes and cars, again paying higher taxes.

Envy is one of the seven deadly sins and Australia with its' tall poppy syndrome is more guilty than most countries. The USA celebrates and encourages success and is the home of entrepreneurs. Their economy is expanding, productivity improving. Australia is in the doldrums with our economy stagnant, regulation strangling productivity and leading the OECD with a declining standard of living. Seriously, which is better?

Thomas Sowell, a renowned economist and social theorist, has famously argued that wanting to keep the money you have earned is not a moral failing or "greed," but rather a rational and justifiable position.

Key Aspects of Sowell's Views:The "Greed" Contradiction: Sowell frequently questions the societal narrative that keeps hard-earned money is greedy, while demanding the money of others (through taxation) is not.

He has said, "I have never understood why it is 'greed' to want to keep the money you have earned but not greed to want to take somebody else's money".

“morally wrong that my effective marginal tax rate as a retiree is less than my children’s marginal tax rates”

In my mind the “morality compass” should also take into account the TOTAL tax paid by an individual over a working career. For example individuals that paid up to 20x average tax over a lifetime (Note: the top 1 per cent of Australian income earners pay about 17 to 20 per cent of all personal income tax revenue) may be excused for thinking that they have already paid their fair share, particularly if they never qualify for the age pension or other concessions, will fully fund their aged care and never relied on other public services such as health or education.

Interesting commentary but the cold hard reality isn't whether the targeted tax changes are fair it's the outcome of the policy. There is absolutely no way that these proposed changes assist the younger generations in any shape of form given the grandfathering and exclusions in new developments that will become the focus of professional investors. If you look at what happened in NZ you'll see how human behaviour works contrary to theoretical round table academic outputs. Tell me they're dreaming if the govt who expects 35k less houses to be built so reliant on existing investors to dumping their investment properties rather than just sit on them. This same govt is forecasting an increase in its expenditure, increase in govt whilst allowing record immigration to continue into Sydney and Melb. The narrative we're attacking it from all angles is rain puddle deep. Net migration is critical, but no society of under 30M can absorb 1.4m in 3 years and now another 1m forecast over next few years. It won't start here as its too political negative to a party reliant on this flood on new voters.

People invent their own "facts",always.A party reliant on this flood of new voters,how could you possibly know who new immigrants are going to vote for.This comes up regularly

Australian citizens can vote in elections.Permanent residents can't.I think it is 4 years until new immigrants can apply for citizenship. In 4 years time will you still be inventing your own facts .You'll know how many of them will still be here ( some don't like it and leave ).You'll know how many of the ones that stay will apply for citizenship. Then out of the ones that apply for citizenship you know who they are going to vote for. People really invent some amazing "facts" for themselves.
You might like to check, I think it was called citizenship and immigration act,around the mid 1980s. People were doing my head in asking me for advice around then. On big projects people are brought in to work on them from all over the world,as new immigrants and skilled short time working visas that were available back then. That act will tell you what the rules are, I don't think they have changed but I could be wrong

Kevin, not sure why that triggered you given the key message on net numbers of migrants is highest in world. I'm not a conservative rather try to follow rational thinking process. If you bother to do a slight bit of digging new immigrants into Australia tend to lean Labor, especially those from Asian and Middle Eastern backgrounds, while some Eastern European groups lean Coalition. Over time, these differences fade, and voting patterns converge with the broader population.

Question: what's stopping ALP from putting in capping measures to stop 93k in Feb alone?

I'm generally OK with the budget tax changes except for two things:
- why the minimum 30% tax on future capital gains? anyone (eg my children) who only earn under $45k will pay more CGT than than marginal tax rate. Some may say "how many people earn under $45k (where the 30% marginal rate kicks in) and have investments subject to CGT?" Maybe not many, but from a policy position I would have thought that a minimum of 15% would be more reasonable (ie the marginal rate up to $45k pa)
- the changes will do LITTLE IF NOT NOTHING to improve housing affordability, the problem is simple - demand and supply - demand will barely move and supply is too slow to keep up with demand.

Hi Mark, it's a good discussion to have.

My take is that this is an extraordinarily bad budget, both politically and in terms of policy.

The housing affordability crisis is real. Removing negative gearing and changing the CGT on property can be completely justified in that context. They grandfathered in existing investment properties, which is appropriate. They tackled what they see as use of trusts for tax minimisation.

If they stopped there, it would have probably been seen as a necessary and bold step to tackle housing affordability.

But they didn't stop there.

They applied the CGT changes to other investors, including share investors and business founders.

To take an example, suppose someone starts a business from nothing, then over a decade or two builds it up to 20 employees, with a $10M / year revenue and a $2M / year profit, and that they pay company tax and their employees pay tax. They've created jobs and grown the economy and increased tax revenue. That's what a government would presumably want.

Now they go to sell the company. They can sell it at a multiple of say 5X profit, or 5x$2M = $10M. Great! :)

They have to pay CGT though.

In the current system, the capital gain is (current price) - (initial price), which is $10M. They then apply the 50% CGT discount, to bring it down to $5M, and then they pay tax on that $5M at their marginal tax rate, which would be around 45%. So they pay 22.5% tax when selling their business, and keep the rest.

In the new proposed system, the initial value of the asset was still zero. The real gain, adjusting the "zero" for inflation, is still $10M - 0 = $10M. They now pay tax on that - at the top marginal tax rate of 45% - and pay tax of 45% on the business they built up over a decade or more.

In other words, the government *doubled* tax on entrepreneurs.

That is not a positive incentive structure for entrepreneurship.

It's much the same for investors. If you're young, you want high growth assets. You want that whether you want to save for a home deposit quicker, or save for early retirement, or save for a retirement where you may have to rent (increasing your retirement budget and the amount of retirement capital you need). But the change in CGT works against high growth assets - if you choose high growth assets you pay more capital gains tax than the 50% CGT discount would arrive at.

Basically, in the name of "intergenerational equity", the government is [expletive verb] younger investors.

The root problem is that the government extended their tax changes beyond property investors, for no particular reason, and apparently without thinking hard about it. So they ended up with very negative unanticipated consequences, both in policy and political terms.

They did that after promising no changes to this policy a year ago, and saying for months they hadn't changed the policy, "no cabinet decision has been made." They developed the policy in secret with no consultation and no opportunity for the public to point out its problems, and - as per their pattern - they then want this new policy passed quickly into law, without any real discussion or debate or consultation that could improve it.

It's not a good way to do politics. They're lucky that their opposition is in a shambles. ;)

I believe it’s important that home ownership is affordable and while the cgt rule changes will effect me, the move back to indexed cgt has merit, while I have never used negative gearing, the concept seems reasonable, I have no fundamental issue with losses from one form of investing being offset against other income. To me the issue is a supply & demand issue, both home ownership and home investment are equally important and need to be encouraged.

For me the elephant is the budget is taxing trusts income at a minimum of 30%. Trusts are the only possibly effective way to relatively cheaply protect wealth, and yes access marginal tax rates that in my opinion every individual should be able to access equally no matter the source of their income.

The younger generation need to understand this new tax is going to affect them much more than us oldies. I’ll still attempt to protect their future wealth the best I can, but my children and great grandchildren will be worst of than they would have been, it won’t effect me much personally but it will effect my family. Any blended family and any sensible family would be using a trust either now or at death or both to try and protect wealth but now that protection comes at a cost, it will cost more in tax to protect assets than just transfer assets, and too me that seems wrong, but I guess it’s an insurance and like any other insurance it’s a cost one has to pay for protection.

At the end of the day, we will all work with the system and pay the tax we have to, but just like we try to only pay the management fees on investments that we have to, the same goes for tax, but as always the few stuff up the system for the many.

And the minimum of 30% on capital gains. I have yet to hear how this will allow younger generations to afford a new home or how this will increase the supply of new homes.

If you had little trust in this government in the past you could be excused for not having any trust in them now. Major policy shifts MUST be taken to elections. The government is meant to represent its people - so, let the people decide!

A minimum 30% CGT is equivalent to an individual earning > $200,00 p.a. (overall average tax rate on earnings).

Young people saving for a house deposit often invest in high growth international shares (e.g. SEMI, NDQ, IVV) bitcoin etc are being punished by this new regime as they are unlikely to be earning $200,000!

Chalmers' intergenerational inequity mumbo jumbo is intergenerational fraud and theft. It's nothing but a further tax grab from a government which cannot control spending. The young need to wake up and see through the spin as they will be the ones left with enormous debt!

"Chalmers' intergenerational inequity mumbo jumbo"

Apparently this guy has a PhD in mumbo jumbo.

The first measurable casualty of the labour budget is the absolute hiding meted out to CBA shares yesterday. Presumably because of the expectation that there will be lower lending for houses. So not only is everyone's super being reduced in value, but fewer houses to be built and financed is expected.

So the market doesn't expect loads of renters to suddenly take out a mortgage and become owners....

Unintended consequences perhaps? Real estate experts warn tax grab will lift prices for first-home buyers. Charlie Munger famously said: "Show me the incentive and I will show you the outcome".

- Labor’s assault on negative ­gearing and capital gains tax will funnel more real estate investors into first-home buyers’ heartlands and push up prices in those areas.

- Buying a brand-new rental property will become the most tax-advantaged investment in Australia after all other assets got hit by higher taxes. Negative gearing has been restricted to new builds, as has the 50 per cent capital gains tax discount, and new construction also gives investors big depreciation deductions. First-home hotspots, typically outer, lower-cost suburbs, will probably see crowded competition as investors push into new builds.

- if new home supply did not exceed demand, the prices of those properties will be driven up as investors with more money than first-home buyers compete and investors have the advantage hat they get to claim it all on tax and the first-home buyer can’t.

- there will be more expensive townhouses and apartments built in inner suburbs because of their land component and investor tax incentives. Rents will go higher.

James# some good points there which journalists are not pointing out, at all. The point that first home buyers cannot claim the costs on tax versus investors, who can move their losses around to maximise deductions, is a good one.

Others have also mentioned that an 'overall tax rate' of 30% is similar to earning about 188k p.a. No journalists are picking up on this in the mainstream. No journalists are shouting from the hilltops about the very severe impacts on young people. Including hits to the share market caused by these tectonic shifts.

50% CGT discount on shares was introduced to also reduce the incentive for day trading / share churning. So removal of it may increase market volatility, which affects everyone, doesn't it?

The environmental impacts are also not being pointed out. There is now an incentive to destroy a perfectly usable building, send all the sunk carbon cost to landfill and burn more carbon by building two or more dwellings on the same site. This is insane. Why not incentivise the modification of an existing dwelling so that it can house multiple independent adults? So that the sunk carbon cost is not just sent to landfill? And it might be faster than a total destruction and total rebuild. 40% of all households are one-person households and only 30% have school-age children (last Census).

Even the taxpayer-funded ABC is not talking about the 30% floor nor the massive impacts on share investing. Oh, wait...the ABC is controlled by the government....ah...I see... :-(

AccentOnYou, Can't recall if introduction of 50% Disc re shares was sold as or intended to reduce day trading, only that it was a consequence shares kept just a day past 12mths to qualify (obviously subject to market & one's investment stance) so less tax, in itself perhaps a poorer outcome in tax collection to Govt, of course we can't know for sure as need to know how much behaviour changed. No doubt a Treasury paper on it somewhere. Day traders factor in 100% CGT so stance same. In small way, maybe new rules may increase share price as everyone will be factoring in tax competing against each other in a rather different way. There are implications for everyone so you may be right about market if comes to pass.

ASX released excellent article re Budget changes authored by it, excellent diagnoses by various experts, makes interesting reading on ASX website---many different scenarios.

Re your housing points, good idea but needs Councils to sharpen their pencils and get them out of the drawer quicker.

With respect to capital gains, I have no problem with the change to indexing in line with inflation (other than it’s going to be a messy calculation for most at tax time). However, I don’t understand how imposing a minimum 30% tax rate on capital gains delivers inter generational equality. The current method taxes capital gains at an individual’s top marginal tax rate. So if you’re working and investing your savings and then sell an investment, you’re currently likely paying tax at a higher than 30% tax rate on capital gains. If you’re unemployed (could be a young student or a 50+ year old who’s been made redundant and finding it impossible to find work) and you sell an investment to live off, you now have to pay 30% tax on that gain which may be your sole source of income. How is it equal that in that situation the benefits of tax free thresholds and lower tax rates are not available to low income earners?

There are some positives in the proposed tax changes, and I am happy to pay some extra tax if it genuinely helps to create fair and balanced outcomes. However, I note the following:

- How is grandfathering negative gearing in full for those already set doing anything for equity? Why would these investors sell their properties thereby placing downward pressure on prices to the benefit of others? It is notable that the political class collectively own a well above average number of investment properties.

- How is greater fairness in the taxation system, to the young in particular, being promoted when the increased tax take proposed is not being redistributed to assist lower income earners or more importantly index the income tax brackets? The latter would kickstart a necessary reduction in dependency on income tax in this country, and reduce the capacity of politicians to play their periodic pork barrel lottery whenever they see the opportunity to purchase a vote. An insultingly small $250 tax reduction is something the government should be embarrassed by, and seems designed to do little more than give them a positive sounding talking point.

- How is levying a minimum flat rate of tax of 30 percent on any capital gain fair to lower income earners who might be starting out on their investing journey with relatively small sums? To reach an overall average income tax rate of exactly 30 percent as an Australian resident, you would need an annual taxable income of $187,414 for the 2025–26 financial year. So, assuming a young person is not on an income support payment, it is proposed to tax realised gains from a small ETF holding or managed fund at the same rate as the average tax rate of a much higher income earner. On that basis is a flat tax rate of 30 percent really a fair way to tax anyone on capital gains, when that style of flat tax rate is usually applied to legal structures such as companies rather than cherry picked application against particular styles of investment? Presumably a retiree who can invest huge amounts of capital in their PPOR and has the means to reduce their still sizeable portfolio down to a point where they earn a few dollars of old age pension does not incur the 30 percent flat tax. All while politicians retain the ability to write off their negative gearing losses against their high incomes.

I want to be positive, but over the years I repeatedly see the government of the day that introduces these reforms doing so in ways that benefit themselves, and create illogical and unfair outcomes with great increases in complexity. If I can recognise the issues listed above, I have every confidence the intellectual capacity exists within government and the policy advisors that serve them.

What appears to be lacking is the motivation for rigorous and selfless hard work to achieve a best as is reasonably possible outcome for all.

“insultingly small $250 tax reduction is something the government should be embarrassed by, and seems designed to do little more than give them a positive sounding talking point”

If you really drill down the whole budget is a cynical talking point as far as making any meaningful difference to housing affordability for aspiring home owners. Any careful analysis will show that lack of supply, real interest rates kept too low for too long, excessive immigration and building cost inflation are primarily to blame and that “inter-generational equity” is offered as a “convenient straw” for the disenfranchised to clutch because they fail to understand that denying present and future generations the very mechanisms that built the wealth of preceding generations will be more hindrance than help in their quest for home ownership.

Allan, you've said it all pointing out drawbacks. But can't agree on confidence in their intellectual capacity.

The grandfathering of negative gearing benefits many Labor (and Liberal) politicians, perhaps including the Treasurer and PM (not sure about them). In business, if you have a conflict of interest, you declare it (they have) and then you absent yourself from any decision making (they have not). This is a serious issue - there is nothing in our Constitution or laws (to my knowledge) that stops a party making laws where a serious conflict of interest exists. If all those with a conflict absented themselves from Caucus decision making and then Caucus voted on changes (Cabinet cannot do this because there would be no-one left to vote, the vast majority have two or more properties), that would at least show some decent governance - even if we suspected that those remaining voted for something just to please those who absented themselves! But as it stands, it smells of self-interest and that is a problem for trust in government, that must be at an all time low these days.

You can check the Register of Members' interests easily:
https://www.aph.gov.au/senators_and_members/members/register

Treasury's third strike:

1. Non-refundable gross dividend withholding tax,
2. Unrealised capital gains tax,
3. Realised capital gains flat rate tax.

Very brave Minister.

What befuddlement will Treasury try next on an indefatigably gullible Labor?

Don't give them any ideas! Whose side are you on Dudley?

I think you are onto something here:

Treasury's third strike:

1. Non-refundable gross dividend withholding tax,
2. Unrealised capital gains tax,
3. Realised capital gains flat rate tax.

Definite agenda against business doing well.

"Definite agenda against business doing well.":

They have many voters that need constant feeding, the money cupboard has been emptied by earlier governments, and they have no original ideas where the additional spending money will come from.
Any tax that looks like a quick quid will be lept upon. What are 'consequences'?

Yes, Labor does seem to be financially incompetent and gullible. I suggest it is more likely to be the nefarious work one of the outside consultants rather than treasury.
While the 30% minimum capital gains tax appears harsh at face value the 30% personal income tax rate kicks in at $45k. Therefore the CGT change is unlikely to affect too many people saving for a deposit.
The shortage of housing however, would seem to be a fiction. According the ABS... There were 1,043,776 unoccupied dwellings on Census Night 2022. The problem is not a shortage of dwellings, it is a shortage of existing dwellings available for people to live in as their primary residence. I live in a coastal NSW town and the 3 homes next to me are holiday homes and I only see anyone in them at Xmas and Easter. Of course everyone has the right to own a holiday home, or a holiday let, or AirBnB but why should the tax payer subsidise that investment? If negative gearing is going to be grandfathered then it should only be available on homes that are rented out on long term leases. That should go some way to alleviate the rental crisis.

Google: "Who advised Jim Chalmers on the 30% capital gains tax proposal?"

'Treasurer Jim Chalmers was advised on his capital gains tax (CGT) changes by the federal Treasury and tax academics. Prominent tax expert Miranda Stewart, a professor at the University of Melbourne who previously worked within Treasury's tax division, was a key voice who advocated for a higher minimum tax and ending the 50% CGT discount.'

Dudley,

While it wasn't formal "advice", Allegra Spender had been promoting tax changes along similar lines, although I think she envisioned the CGT changes apply just to property and not to shares and businesses. A range of other experts involved in Jim Chalmers' productivity round table last year advocated similar views. That round table event was the place where Chalmers seemed to pick up on his misguided idea of "intergenerational tax inequity" and start to believe he had the political capital to push it through.

A discretionary family trust ensures that the assets in the trust are protected from litigation and the trustee (manager) has discretion over how much income each beneficiary receives from those assets. Those beneficiaries are then responsible for the tax on that income.

A discretionary testamentary trust has two additional features. The trust only comes into effect on the death of the donor. And to date, children beneficiaries under the age of 18 are treated as adults for tax purposes.

It means the my will becomes the trust deed and minor children can earn $18,200 tax-free from the trust instead of paying the punitive children’s tax of 66% on amounts over $416.00 on unearned income. It means, as a grandparent, my will can make a contribution towards my grandchild’s education, health and living expenses. It also protects my grandchild, if they are orphaned or if their parents divorce and remarry.

An adult needs to earn $45,000 before they start paying 30% tax on additional income. But the 2026 budget has announced that all income from discretionary testamentary trust will be taxed at a minimum of 30% from the first dollar. That tax on income from my deceased estate immediately destroys my capacity to make provision for my grandchild. Of course my will can distribute my assets to adults, who now pay less tax than children, but I have no guarantee that my grandchild will benefit from that.

This is a death tax on orphans and grandchildren that has nothing to do with making housing more affordable. It is a tax grab from the vulnerable.

I don't quite get the distinction here between adults and children under the new scheme. Isn't this a minimum 30% for everyone? i.e. I don't see that it kicks in at $45K for adults - a minimum 30% would be a minimum 30% from $0 up.

But I don't really understand the new policy yet, I'm not sure that it's been communicated clearly, and may change as it's packaged into legislation and then gets negotiated with the Greens.

I was concerned about the discretionary trust used to protect assets, where the trust contains a PTY LTD structure. I envisioned the company taxing profits at 25%, the trust taxing the profits distributed to it at 30%, and then the individual paying tax on their income + profits at the marginal tax rate (e.g. 45%). That looked like triple taxation to me. AI explained it though, and essentially there's a series of credits. The net effect is that the company pays 25% tax, the trust bumps this up to 30%, and the individual pays no further tax except for paying any tax differential (if any) between the 30% paid by the trust and their marginal tax rate.

Agree all taxed at 30% but Jon is correct that it impacts grandchildren who would be at zero up to $18200.
Re Trusts, it's early yet but I think you have to read the "un-refundable" credits to see the traps, which I believe get worse with a "bubble-company" in the mix.
Change not reform.
Reform should go to election.
Not good intergenerational change to penalise elders by removing extra health rebate

John S,

If the point on the trust change is that previously an income owner in the top bracket could pass off some of their current income to their children or grandchildren who pay a lower tax rate, I kind of get why the government would want to minimise it. One would think that the principle would be that they pay the tax rate on the income that they earn, and that shouldn't involve their children being looped in as a tax minimisation exercise.

I don't know much about how a discretionary testamentary trust works, but I gather it's mainly for wills and protecting where assets (e.g. from one spouse's parents) get directed in the case of divorce. Google says:

"Significant Tax Advantages: Income generated by the trust can be distributed highly efficiently. In many jurisdictions (like Australia), minor children and grandchildren can receive trust income taxed at standard adult marginal rates rather than punitive minor penalty rates. This allows for substantial income-splitting and tax-free threshold utilization."

I have no idea why the government thinks it's a good idea to have punitive rates on minors if they are recipients of a trust distributing an inheritance. Equally I don't know why the distribution is to minors anyway - I would have assumed it would either to be the minor's parent or guardian, or held until the minor comes of legal age.

We are told that the purpose of these tax changes is to make housing more affordable. The aim is clearly to drive property investors out of the market by reducing their investment return, thereby reducing demand and lowering the price of all houses.

But no one can explain why also increasing the capital gains tax on the sale of a business or shares in that business will make any difference to the cost of housing for first-home buyers. Therefore this change is just cover for another tax grab from business owners. The effect will be to also lower investment returns and therefore reduce investment when productivity is near zero.

We could achieve the same result of reducing the investment return for property investors without disturbing the existing tax arrangements by increasing their investment costs. This could happen with an increase of stamp duty on those transactions, or requiring a larger deposit (say 50%) or requiring a larger interest payment on their mortgage. In each case the risk/return calculus changes to level the playing field for owner occupiers.

The proposed changes are to level the field in residential investment for the corporates who can now enter the market and fight it out with private Mum and Dad investors. Now your corporate housing fund has the same tax environment as Mum and Dad investors. The Industry super funds can now also get in on the game because they will use corporate structures to purchase homes from ex investors. Now at Auctions you will have an executive competing with first home buyers. This is what Labor's plan has been all along because Industry Super Funds are filled with ex Labor politicians.

Well we will finally get to see if the promised land comes to fruition from these changes, although the grandfathering will take some time to shift any dial (anyone know the odds being offered on grandfathering being removed in the next budget - after all nothing is off the table now). The biggest miss is the total lack of any acknowledgment of the supply/demand imbalance and why this drives prices (90% correlation as per Alans earlier comment). OK, some investors will sell up and some renters will become owners. But not all renters can be owners, so even if for every 3 rentals sold up, only maybe 1 of those will become owned by a prior renter. So what do the other 2 former renters do now? What seems totally lost is we don't have enough houses available to rent now, and the answer is to remove more rental properties from the market (presuming less landlords means less rentals).

"That isn’t how life works – somebody needs to lose for
others to win."
Do you really mean that ?

Since the budget last Tuesday I have lost count of the experts who say that rents will go up because landlords will vacate the market. This is because they will be selling to owner occupiers, hence causing a shortage of rental properties. No one gives a reason for the rise in rents. To my way of thinking if an owner occupier buys the property, they are vacating another property elsewhere. Net change in the number of rental properties: zero.
So why will rents go up? What am I missing?

To cover the cost of the non deductible interest. You will find rents went up when this was previously done by Hawke and also more recently in NZ. Both reversed policy it within 2 years.

What you may be missing is that, unless there is a significant improvement in housing affordability, owner occupiers are unlikely to purchase every property that is vacated by a landlord. Because there is little or nothing in the budget to address rising interest rates, building cost inflation and immigration (all of which will continue to negatively impact the very supply which is touted to magically make housing more affordable) there is every chance that properties are just as likely to pass from one landlord to another (braver) landlord.

However any landlord now entering the market will likely require higher rent to make the investment viable under the changed landscape. So long as there continues to be an under-supply of housing the braver landlords entering the market may be the ones setting a new benchmark for renters.

While the changed landscape is aiming to shift investment to new builds it remains to be seen whether this will be enough in the current circumstances in which developers are reluctant to come to the party because building costs continue to be significantly more than what the market is willing or able to pay. Of course this equation may change if there is a significant increase in rental income to make up any shortfall

My comments above assume that the government is not attempting to improve housing affordability by crashing house prices nationwide which could devastate recent entrants to the market (including those that purchased with a 5% deposit) as well as the economy which relies heavily on housing for its lifeblood. Note also that new builds require existing properties to rise rather than fall in value to make them viable.

Rents may not need to rise. But without taxpayer subsidy, investors will require a higher investment return to make the investment worthwhile. Consider an investor who requires a 5% return to make the investment pay. Because of the taxpayer support they are happy to accept 4% rent because the taxpayer contributes the other 1%. If we remove the taxpayer support, the rent then needs to produce the full 5% all by itself.

If rents can’t increase, the same yield can be achieved if the asset price falls. For the same rent to be equal to 5% rather than 4%, the buy price needs to fall by 20%.
Imagine a rent of $2000 per month or $24,000 per year.
$600,000 x 4% =$24,000
$480,000 x 5% = $24,000

To maintain the same rental yield, the buy price needs to fall by 20%. The unspoken effect of this budget is to put downward pressure on house prices - the whole market, not just rentals.

Stephen,

Say the whole market consisted of 100 rental properties (owned by investors) and 100 family home properties (owned by a home owner / home owning couple).

One of the rental properties is then sold by an investor. The number of rental properties in the market now becomes 99. At the same time, one of the former renters now buys the (formerly) rental property and becomes a family home owner. The number of family home properties goes up to 101.

Now there are 101 family home properties in the market and 99 rental properties owned by investors. The number of places available to rent has gone down by one. This repeats, for maybe another 9 or 19 houses, so maybe it's now 90 rentable investment properties and 110 family home properties. The number of rental properties available has shrunk.

Obviously, the number of renters went down by one as well each time in this example, so on that basis there would appear to be be no net change in rental prices. But ... in the real world, there are always new people coming along wanting to rent - people finishing uni and starting work and renting a place, people moving out of a share house to rent by themself, people moving from overseas for work, people divorcing and going to rent by themself. All of these new people entering the rent market will find there are less places to rent than there used to be.

Therefore, rents rise.

Do you see it differently?

I'd just like to make a quiet point about perhaps the most important social change that frames all these excellent insights. Increasing longevity has driven many of the political and social reactions of our times. The boomers were not expected to live beyond 70 when they were born, their parents even less. Today the number for a baby is in the mid 80's and still rising (although not for those reaching their 90's).
Without seriously taking longevity growth into account, we will continue to find ourselves in blind alleys of logic - both as a community and personally. Most of our reactions are driven by fear or ignorance of how increasing longevity is affecting us or may do so. Longevity awareness is a key requirement for good outcomes.
Raising social and personal longevity awareness is a major driver of sensible purpose. It frames all our decisions not just the financial ones which seem (understandably!) to be the current obsession.

Addressing inequality is not about a class war that takes from the rich. The real inequity is often that people with greater wealth have a far greater capacity to minimise tax within a convoluted system. Ordinary wage earners generally pay what is required through straightforward PAYG taxation, while those in a position to better utilise trusts, company structures, deductions and investment vehicles can legally reduce their effective tax burden in ways unavailable to most people.

That creates a perception that the system is unequal not because some people earn more or have more, but because the rules become increasingly flexible for those who can afford to navigate them. The result is an entire tax minimisation industry built around exploiting loopholes, structuring income differently, or shifting assets in ways that reduce taxable income. It makes a fares of a “progressive” income tax structure. While much of this may be legal, it can undermine public confidence in the fairness of the system.

A simpler tax structure could reduce many of these distortions. Personally, I would be comfortable with a system that had only two tax rates, with the second being a flat % for everyone earning above, say, $60,000 and have lower income tax and higher asset and consumption taxes. Everyone above that threshold pays the same rate, regardless of how their income is structured. In return, many deductions, offsets and complex tax arrangements can be removed. The idea would not be to punish success, but to make the system clearer, more transparent and harder to manipulate.

The biggest benefit of a simpler model is that it would reduce the incentive and opportunity for aggressive tax minimisation and instead the focus would return to productive economic activity. A system that is easier to understand and harder to game would do more for perceptions of fairness.

I agree Rick. A flat tax system for income with one threshold (indexed to inflation), no tax below the threshold and a fixed tax rate above the threshold, *with no deductions for anything* would be simple, effective, and fair.

Another underlying problem is that Australia is too reliant on personal income tax. Your proposal would make income tax better ... but government still needs to generate revenue, and they shouldn't rely too much on personal income tax (or capital gains taxes) to do it.

The first fix to that problem should be to tax national resource use more (e.g. the 25% gas export tax) and tax multinationals more (e.g. tax multinationals on revenues, not profit).

The second fix to that, which pundits seem to focus on, is an overall reform of the tax system including the GST (including lifting the GST to 15% or 20% and revisiting how the revenue from GST is allocated) - i.e. lift growth taxes like consumption taxes.

"Capital gains tax measures Ralph Report
2.14 A capital gains tax liability occurs when there is a real capital gain in the value of an asset acquired after 20 September 1985 at the time of its disposal. At present, the acquisition price and the cost base are adjusted by the rate of inflation, if the taxpayer owns the asset for longer than one year. An averaging system applies which attempts to ensure that the taxpayer is not taxed on capital gains at a marginal rate higher than that which applies to the taxpayer's other income. However evidence from the Ralph committee points to significant abuse of these provisions by some taxpayers.
2.15 The Government's proposed changes are to halve the CGT rate for individuals, meaning that they will pay no more than 24.25 per cent on nominal capital gains held for at least one year (this rate reducing proportionately for taxpayers on lower marginal tax rates). Complying superannuation funds will be taxed at two-thirds of the difference between the disposal price and the original cost. Indexation of the cost base for calculating capital gains is proposed to be frozen at 30 September 1999 and averaging of capital gains will be discontinued effective from 21 September 1999.
2.16 The reasons outlined by Government for the proposed changes are to invigorate asset management, to stimulate greater participation by individuals in investment, to achieve a better allocation of capital resources and to make Australia more competitive internationally as an investment location."

Worth looking at the principles of the Ralph report in 1999. Note that current discussions leave out any discussion of fairness re averaging or the 50% rate to ensure investors are not unduly penalised by moving to higher tax bracket.

Not sure how driving up trillion dollar debt on the nation's credit card is tackling intergenerational equality.
Ballooning debt and immigration has stalled the recession we need to reset the economy including inflation and asset prices.

To Mark, author of article.
Late to the party this week but you presented a great article of a well-balanced view with great narrative. Now to plough through the 79 comments to find, no doubt, many well-balanced replies.