Josh Frydenberg has launched a pre-election attack on Labor’s plan to halve the capital gains tax discount, forewarning that many Australians will be taxed at the “highest rates” in the Western world.
The Treasurer pointed out government analysis that revealed Australians would be taxed as much as 36.75% on their capital gains under Labor’s policy – up from the current 23.5%.
In contrast, American taxpayers face a 23.8% tax on capital gains, while the British pay 28% on residential property and 20% on other assets, and the Canadians are taxed at 16.5%, according to the modelling.
Mr Frydenberg stated Labor’s plan to increase the capital gains tax by 50% had “gone under the radar”, however, it would have “far-reaching consequences” for people who invested in shares and property. He added that Labor’s policy is “short-sighted and ideological”.
In a statement, he said, “Labor’s plan to make Australians pay a capital gains tax rate that is higher than comparable countries such as the US, UK, Canada, NZ, Japan, and Germany is destructive, to say the least.
“Independent economic analysis confirms it will not only hurt confidence in the market but reduce GDP growth, lower real wages, increase rents, and undermine economic activity overall.”
Cutting in half the capital gains discount is expected to raise $12.6 billion over ten years, while the negative gearing changes will generate $19.8 billion over the same period.
Capital gains tax rates
Individuals are currently taxed on capital gains they make on their investments at their personal marginal tax rate, but receive a 50% discount rate on the gain if they have held the assets longer than 12 months.
An individual on the top marginal tax rate of 47% (45% plus the 2% Medicare levy) has the rate marked down to half of that: a 23.5% effective tax rate.
Should Labor win, they will reintroduce the 2% budget repair levy reducing the capital gains tax discount to 25%, which would affect those on the top marginal tax rate to pay up to 36.75% in tax against their gain.
Mr Bowen counters
In response to Mr Frydenberg’s comments, opposition treasury spokesman Chris Bowen said, “Capital gains tax is effectively the marginal tax rate minus the CGT discount. Is Mr Frydenberg assuming everyone who makes capital gains is on the top rate?
The fact is that 70% of these benefits of the CGTD go to the top 10% of income earners. The question is: how can Josh justify people getting a 50% tax reduction not available to PAYG payers and which was introduced when inflation was much higher than it is now?”
Should Labor win, the capital gains tax changes would be grandfathered, just like their negative gearing policy, so Australians would keep the existing 50% discount versus any shares or real estate they have acquired prior to the policy’s commencement.
This article first appeared on The Australian.
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