Wilson Asset Management founder Geoff Wilson AO says the budget’s capital gains tax change will not just raise the tax investors pay, it will change how they invest.
Speaking on the new-look Switzer TV, he argued the policy pushes Australians out of individual shares and away from growth, and lands hardest on the young investors trying to build a house deposit.
Wilson has launched a petition against the change to the capital gains tax as it applies to Australian companies, and he was clear about where he sits in it. Asked whether his own firm was affected, he said his business is, if anything, a beneficiary.
“To start off, our business, we’re a fund manager. We’re actually positively impacted because of the rules,” Wilson said. The point he was making was about everyone else.
Pain or gain, Wilson’s central argument against Chalmers’ latest budget, however, is that the new treatment of capital gains changes the maths on holding a portfolio of individual shares. He set out how.
“You might have ten companies that you’ve invested in, say, five to ten years ago. And under the new rules, if one of them went up a lot and the others didn’t go up by as much as inflation, then your real tax that you pay, people have done numbers that could be 70 per cent, it could be 100 per cent of the gain,” he said.
He adds that eventually, investors stop picking stocks themselves.
“People are going to move from buying individual stocks or a portfolio of individual stocks. They’ll put it with funds management managers, like ourselves, with listed investment companies, or they’ll put it in ETFs,” he said.
He argued the change also tilts investors away from growth and toward income, again naming his own corner of the market as a beneficiary.
“Capital is penalised more now than income. So people will be looking for just high, high income. And again, our listed investment companies, they all provide high income,” Wilson said.
The problem for young investors
Wilson’s sharpest concern was for younger investors, who he said already give up part of every pay packet to superannuation and have turned to the share market to build a deposit.
Watch the full interview:
“Young people lose 12 per cent of their salary to super every time. How are they going to get a deposit?” he said. “Young people are smart. They’ve started investing in the stock market. But now they’re going to be punished for being successful, investing in the stock market, which they wanted to use to build their deposits.”
“The great thing about crypto and Bitcoin is young people now understand markets. When I was growing up, there was nothing like that. The only type of market or understanding odds was the races,” he said.
He recounted a conversation with a young investor to illustrate the behavioural change he expects.
“That 27-year-old, she said to me, I can’t believe what they’ve done. I’ve been buying ETFs. Now all of a sudden they’re going to get taxed effectively double,” Wilson said. “They don’t want to go for growth anymore.”
He added that it gets worse for risk-takers like founders and the earliest backers of a company.
“If you’re a founder and you put no capital in, there’s no indexing. Zero is zero. And you’re going to be paying 47 per cent tax. So the higher the growth above inflation, the bigger tax you’re going to pay,” he said.
Wilson tied the change back to the government’s stated goal of lifting productivity, which he said it cut against.
“How do you improve productivity? You encourage people to invest capital long term. And effectively, the budget is doing exactly the opposite,” he said. “To include all Australian companies in this is just such a backward looking step.”
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