Start-up founders built their businesses on risk. Now Jim Chalmers’ capital gains shake-up might cost them the reward, and top investor Steve Baxter says Canberra will regret it within two years.
Steve Baxter reckons Canberra’s new capital gains tax (CGT) changes will prove just as short-lived as Bob Hawke and Paul Keating’s ill-fated 1980s negative gearing experiment, and today’s GDP numbers might show just how badly timed they are.
A prominent Australian investor and former Shark Tank TV show judge, Steve Baxter, predicts the calamitous consequences of the Budget’s slug on investment will be reversed within two years. And today’s economic growth numbers might show how ill-timed and inappropriate these new taxes on investing really are.
Baxter, who has had the innovative idea to create a venture fund for investors to put money into local defence industry businesses, has told news.com.au reporter Heath Parkes-Hupton that “the destructive impacts would be impossible to ignore”.
And he pointed to another historical meddling of a former Labor government, who had to back down on a tax-hitting policy, when investors virtually went on strike as a consequence of the capital gains tax changes. “In the same way that back in the 80s when then-prime minister Bob Hawke and then-treasurer Paul Keating changed negative gearing and they put it back 14 months later because it was just a bloody disaster,” he told news.com.au. “I think we’ll see a similar concept here. It’s turned us into an exceptionally undesirable destination for capital.”
Prior to the second Tuesday in May Budget, changes to the treatment of capital gains were expected to be reserved for property investing, but big and small businesses were staggered when it was applied to the sale of all assets that grow in value.
Start-up businesses that actually become successes, employ people, pay taxes annually and take a pile of risks to grow a sellable business down the track, now face an inflation-adjusted capital gains tax discount. This replaces the old 50% discount, which meant if your gain from selling a business was, say, $10 million, you would pay tax on $5 million, or half the gain.
Now someone who starts a business, or existing business owners who haven’t seen their ‘baby’ grow in success and value, will only be able to discount the gain in future value by the rise in inflation, which the RBA wants to keep between 2-3%!
That’s bad for risk-takers who start businesses and put their home up as security on loans to build a winning operation, as well as for investors who might want to put their money behind potentially good enterprises, but it is great for tax collectors like Jim Chalmers and Anthony Albanese.
Baxter says: “And for people who are here … there’s no premium for the risk you take when you invest in small business, when you invest in innovative businesses and it’s instead preferring you to go into pool investments, because of other various mechanisms around how to implement that.”
Today the ABS releases our National Accounts, which tell us how our economy has been growing, which is important for creating jobs. And the RBA will watch the numbers closely to see if it needs to stop or keep going with raising interest rates.
Last night I attended a function welcoming the new CEO of Crown Sydney, American Ken Janssen, and I was astounded by a revelation from Crown chairman, John Borghetti, that 36 million visitors go through Crown properties each year.
Lloyd Williams and later Kerry Packer invested their companies’ money in this start-up project, which is a big contributor to the tourism sector that is responsible for one million Australian jobs. Deloitte says tourism is 15% of our total exports and its “share of Australian total GDP was 3.1 per cent, higher than the share of agriculture, forestry and fishing, utilities and information, media and communication.”
This is why Canberra’s big ideas to raise taxes need to have a longer-term view on who risks their money to create new businesses, that create new jobs and pay a lot of income, GST and pay-as-you-go taxes for their employees to the ATO and Treasury each year.
Interestingly, some Aussie entrepreneurs have been looking at relocating as a consequence of the Budget, with the UAE, Asia and even New Zealand being seen as alternative locations for their operations. “Non-bank lender Pepper Money recorded a 650 per cent increase in inquiries from Aussies seeking finance for New Zealand property purchases in late May. The lender usually sees a low average of two inquiries per month, but that jumped up to 15 per month following the budget,” Parkes-Hupton revealed. “New Zealand does not impose a broad capital gains tax on investment properties, nor does it impose stamp duty on property purchases.”
Behind these GDP figures out today are hundreds of thousands of local entrepreneurs and many of them must feel like ‘golden geese’ that are starting to be cooked by their taxing masters in Canberra.
