Tax reform, capital gains and the cost of short term thinking
Make no mistake, I prefer to pay less tax than more tax.
I believe if the tax burden was spread evenly at a lower rate, politicians would compete to offer ways of reducing the tax rate.
Where Keating is correct, as noted in the AFR on 21 May 2026, is that when policy panders to specific self interest, the tax impost falls unevenly.
Currently, the burden falls excessively on wages and salaries, and not enough on capital gains. Further, when you favour one type of gain, capital is misallocated and inefficiencies arise. We see this in negatively geared property and owner occupied housing.
As a consequence, capital is not allocated to productive enterprises, and industrial production has fallen along with productivity.
A more consistent approach
A consistent methodology of inflation indexed or 30 percent, choose your poison, is a thumbs up from me.
It simplifies the system and reduces the opportunity for minimisation strategies.
This could be extended to the family home and include, with tweaking, the four principles of the small business tax concession.
A lack of political courage and conviction to get past the headline and discuss “the how” would be appreciated by our grandchildren and future generations. See Front Row Facts, 4 February 2026.
Why the campaign against CGT changes is not resonating
The campaign against changes to CGT is not resonating with me because the changes:
- Apply on gains from 2027. Who is impacted now?
- Apply only if you sell the business or asset, meaning it is a cash out event.
- Still allow eligibility for small business tax concessions. These are very generous and highly effective in reducing CGT on long held business assets. It is not difficult to reduce CGT to close to zero.
- Apply to all shares, including private company and listed investments.
However, tax fairness can be improved if there is credit for tax paid as part of policy.
I struggle to find the issue with the “no change” campaign. It is about an event that has not happened and may never happen for many of us.
Without change, there is Buckley’s chance we can expect significant reductions to personal tax rates.
Why capital gains reform matters
A consistent methodology to assess capital gains is not the only change needed, but it is an important first step to reform.
When accompanied by tax incentives targeting certain socially desirable outcomes, such as affordable housing in regional areas or medical technology, government policy can target key social and economic outcomes.
We often hear community concern about Australians who sell out of businesses, especially technology entrepreneurs who do not convert invention to innovation. It is consistent to expect changes to CGT could encourage a longer term focus on commercialisation and profitability in Australia.
Changing the business culture
The focus of taxation has fostered a very short term perspective to business and asset management.
By contrast, US business culture is more long term and growth focused.
The tax environment has encouraged a transactional view of economic growth. To change business culture, changes to the tax system are an essential part of that shift.
The tax system needs to disincentivise the “buy and flip” mentality and foster a “grow and expand” mindset.
A broader taxation base
If the locus of policy is to broaden the taxation base, the operating imperative for government should be to bring rates down over time.
Could we imagine an Australia where GST is 15 percent, CGT is 20 percent and average personal tax rates are 25 percent?
To deliver that kind of future requires some to give up ethically questionable advantages if all are to benefit.