I've often wondered if the halving of the capital gains tax for assets held over 12 months did more harm than good for the economy. I think most would agree it was a mjor component of the house price boom we saw soon after it's introduction. Not sure how much an impact it had on shares, but pretty much it made higher income earners see "capital gains" as a much better way to increase their income, than well working hard.
My understanding is when Costello asked John Ralph to do a taxation review he had a specific section looking at capital gains taxation. Ralph seemed to go even further than what Costello was looking at but basically halving the marginal tax rate on capital gains, with the associated loss of capital indexation to CPI.
Maybe it's hindsight, but surely anyone would have realised what that would have done to the property market, yet he said instead he expected the cut to bring about a surge in sharemarket investment, "particularly in innovative, high-growth companies". Still don't see how that would have been a benefit to the companies, as unless you are issuing new shares it's not having an impact on the funding of these companies.
To quote Costello “There is no conclusive evidence that the taxation system has had a significant effect on house prices.”
I'd also argue that the new system is actually detrimental to the longer term investor due to the loss of capital adjustment due to CPI. Seems the longer you hold an asset the worse off you could be depending on the rate of inflation and how you asset value holds up.
A lot of what I read reckons at the end of the day the changes were revenue neutral - considering the $8B or so in negative gearing losses each year I have my doubts.
Anyone know of some historical stats that show how much tax revenue has been lost to the halving of CGT?
Anyone like to share if it did / didn't change the way they plan their investments.
I'll come out and say I don't see why tax on income should be discriminated in favour of that earned by capital gains compared to wages or interest earned. Seems to foster the mentality of going for broke, rather than being a bit more fundamental about the income an investment will make.
As an aside, I hope we don't follow the republicans who want to remove taxation on capital gains.