The federal budreceive is under pressure. The budreceive recently blew out by $57 billion and runaway spfinishing is to blame for driving Australia’s stubbornly high inflation. That spfinishing, and the government’s reluctance to rein it in, has pushed it to see for new ways to raise revenue.
The government is now considering whether to hike capital gains tax (CGT) by reducing or eliminating the long-term discount. It has been coy about this, seemingly flying a kite to see how people react. For now, the focus appears to be on how the CGT discount applies to houtilizing.
Proponents argue higher CGT would support first home acquireers by ‘forcing’ investors to sell or by driving them out of the market. They are wrong. Hiking CGT will backfire and will not support with the houtilizing crisis. Here’s why.
Start with construction. Higher CGT would deter it. Investors — especially developers — are rational value maximisers. They care about after-tax returns. If those returns fall below what listed markets offer, they will redirect their capital.
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