Former Treasury Secretary and chair of the Henry Tax Review, Ken Henry, has described the intergenerational injustice built into Australia’s tax system as an intentional “act of bastardry”.
Treasurer Jim Chalmers also seems convinced there is a problem that needs solving and has recently been using the phrase “intergenerational fairness” when talking about the government’s plans for tax reform in the upcoming May budget.
This week, a Senate inquiry into the operation of the capital gains tax (CGT) discount handed down its final report.
This tax applies to the capital gain when an asset such as a house or shares is held for more than a year. It currently includes a “discount” of 50% on the total gain as an offset for inflation.
The committee found the current discount:
- distorts investment decisions
- skews housing ownership away from owner-occupiers and towards investors, and
- has significant implications for wealth inequality — including between generations.
So, what impact would reducing the discount have on the housing market?
How the arguments stacked up
Tax and Transfer Policy Institute academic Robert Breunig’s evidence to the inquiry was almost as colourful as Henry’s commentary. But rather than framing the problem as intergenerational, Breunig sees it as a divide between the asset-owning class and the rest.
We’re heading back to some kind of neo-feudal society where the opportunities that you have in life are determined significantly by the relationship that your parents have with real estate, land and property.
The distribution of opinions on CGT reform is telling.
Virtually every substantial submission to the committee advocating for leaving the discount unchanged came from those who directly benefit from the current system. This includes the Property Investment Professionals of Australia, the Property Council, and the Real Estate Institute.
Meanwhile, those calling for substantial reform include academics, civil society organisations and unions.
The Liberal Party members of the committee drafted a dissenting opinion. They used the same argument Liberal leader Angus Taylor has been making — that reducing the CGT discount will reduce housing supply. Taylor has said:
If you tax something more, you get less of it.
This is, being generous, an exaggeration. CGT is not a tax on homes, it’s primarily a tax on speculation — buying an asset with the hope of selling it for more than you bought it.
The committee reported Australian landlords made a total of $219 million profit on their rental properties in 1999 before the CGT discount was introduced. By 2023, this had turned into a staggering $11 billion loss. This is the direct result of combining negative gearing with the capital gains discount, because losses made on the rental investment are tax deductible.
Also, according to the committee, 92% of investor finance flows into established homes rather than new builds.
That doesn’t create a single new dwelling. It just inflates the price of existing ones by giving tax-advantaged investors a bidding advantage over first-home buyers. Reducing the incentive to speculate should mean fewer speculators, lower prices, and more houses available to owner-occupiers.
Efficiency in the eye of the beholder?
Economists are fond of the word “efficiency”, often wielding it as if it were a neutral, scientific benchmark. But in the world of tax policy, the real question is: efficient at doing what?
There are legitimate reasons for some form of CGT concession, which was initially introduced to encourage investment in shares.
Without one, investors tend to hold assets longer than they should, just to defer their tax bill (what economists call the “lock-in effect”). Part of any nominal gain is simply due to inflation.
Prior to 1999, the discount was benchmarked to actual inflation rather than the current flat 50%. The flat 50% discount overcompensated for inflation and created a subsidy for speculation.
The system distorts decisions
Our current CGT regime is remarkably “efficient” at distorting investment decisions. It incentivises Australians to chase tax-advantaged capital growth rather than productive investment.
It is “efficient” at funnelling capital into existing housing stock, resulting in higher prices.
And it is “efficient” at concentrating wealth in a handful of leafy, high-income electorates. Taxpayers in Wentworth in Sydney’s east receive nine times the national average benefit of the CGT discount; those in Kooyong (which includes Toorak in Melbourne) receive more than five times.
The case for meaningful tax reform
But there is no technically correct way to design a tax system. Like all public policy, getting it “right” depends on our collective values.
When industry groups defend the discount, they aren’t defending an objective economic truth. They are defending a value set that prioritises asset price speculation over housing stability and affordability for owner-occupiers.
Reducing the CGT discount in isolation won’t suddenly make housing affordable in Australia. The interaction with negative gearing of property losses and other issues, such as land tax, public housing and barriers to moving, also need to be considered. But the way we tax capital gains is an important part of the puzzle.
Meaningful reform requires us to decide what kind of country we want to be: one where everyone has access to a stable, long-term home, or one where your life’s opportunities are dictated by your parents’ relationship with real estate.
Warwick Smith, Honorary Fellow, School of Social and Political Sciences, The University of Melbourne
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Spoken like a true communist.
Try working you as$ off to make the money to be able to invest in the first place.
It isn’t easy, thats for sure.
Its all very well to quote Ken Henry, but why did his ideas from before not get implemented ?
Its all very well coming yup with good ideas, but if they cant be used, they are not of much value
The hardest part of this question (CGT proposition) is knowing where truth end and ideology begins! Economists don’t work in universities pontificating about social outcomes & if Ken Henry is right, why was he largely ignored?
“The case for meaningful tax reform : ”
“But there is no technically correct way to design a tax system.
Like all public policy, getting it “right” depends on our collective values.”
Yes….there is ! ………………”Pre-1915: ………………..No Federal personal income tax existed,
though individual colonies/states had their own taxes !”
“Australia has never been completely “tax-free” since Federation in 1901, as customs and excise duties were introduced immediately. However, personal federal income tax was not introduced until 1915 to fund World War I !!! [ Just like Europe and all it’s wars ! ].
. Prior to 1915, the Commonwealth relied on other revenue, and residents were only subject to varied state-based taxes. ”
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Do away with “THE COLLECTIVE MENTALITY” and you do away with MOST OF THE BUREAUCRATS , MOST OF THE WASTE AND MOST OF THE TAXES !
“Unlike a community, which may focus on shared identity, a
collective is generally defined by its active, intentional collaboration toward a specific purpose . [ Like keeping LABOR in office !! Regardless of the damage they are doing !!! ]
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Collectives prioritize the needs of the group over individual desires, emphasizing unity, selflessness, and shared decision-making…………………….often operating without rigid internal hierarchies “…….which is WHY they MUST HAVE RIGID EXTERNAL HIERARCHIES to IMPOSE “order” ……like Hitler and Stalin and Mao !
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What WE need is a RETURN TO COMMUNITY !
Preferably a COMMUNITY based on COOPERATIVE voluntary UNITY ,
singularity and homogeneity of purpose , MUTUAL concerns and aligned interests ,
advancing all aspects of SOCIETY in a fruitful and meaningful way and catering to all people with a desire to personally improve themselves and succeed in life …….and not raised to “bleed money from the State” !
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Ken Henry, has described the intergenerational injustice built into Australia’s tax system as an intentional “act of bastardry”………………… Is it really that bad?
YES ! But it is HIS intentions and HIS analysis that are highly dubious and questionable !
THIS is an irrational emotional response to the ONLY thing Ken Henry can find WRONG with CAPITALISM and it’s abundantly obvious success in Australia !
He “seems” to want to ‘covetously inflict punishment ‘ on his fellow citizens ?
Perhaps it is because their abilities and success eclipse and exceed his own ?
Perhaps his unquestionable intellect is at odds with his patriotism ? Who knows ?
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The term “intergenerational” (meaning between or amongst different generations) was first recorded in 1964 ….While the concept of generations has existed for centuries, formal intergenerational programs and studies arose in the early 1970s as a social phenomenon….” ………a topic safely discussed at leisure and in comfort , while enjoying all the material benefits created and developed for them by their forefathers and hard working antecedents !
[ So…..it’s ONLY a mental construct , like “gratitude” , “respect” or “entitlement” and
NOT A REAL THING , like “a gaol term” ,”an inheritance” or “working for a living” !!! ].
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“Intergenerational injustice” occurs when current generations make decisions—
—such as environmental depletion, unsustainable debt, or climate inaction—
that impose severe, disproportionate, and unconsented burdens on future generations “.
[ THAT definition is hardly an accurate one ! Nobody DELIBERATELY sets out to cause harm to their own off-spring , although their decisions can be misinterpreted to mean
whatever you WANT them to mean….especially IF YOU TWIST and PERVERT THEM and IF YOU CYNICALLY IGNORE ALL THE BENEFITS GENERATED FROM THEM ! ].
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As ADAM OMARY said : “Perhaps only in a world of material abundance, safety, and comfort—where mood swings and relationship conflict represent life’s biggest challenges for many otherwise healthy people—do we begin to treat such adversity not as fate but as a problem to be solved.”
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Today people HAVE the best living conditions for humans EVER experienced in history !
No “DRAGONS TO KILL” ANYMORE ! It’s all been done , at great personal exertion , bloodshed , tribulation and death , and PRESENTED on a PLATTER for the choice and delectation of ‘todays’ puerile ‘plebs’ …………but they are dissatisfied and ungrateful !
Little wonder ! The “indoctrination” they received in schools , instead of education ,
has dulled their intellect and ambition and appreciation for the life and lifestyle they have now inherited ! Their resentment and sense-of-entitlement and their general incompetence in anything other than “electronic devices” [ also invented and ‘perfected’ by their antecedents !! …NOT them !!!….but “Mr Google” probably omits that fact !!! ] .
It was all done with such HIGH HOPES that future generations would BENEFIT , APPRECIATE and GROW their CULTURE and their inherited COLLATERAL into really significant and worthwhile achievements , including an improved world and individual happiness !
At least “we” tried ! Despite Ken Henry and his grasping-greed-generating-gaggle !
As ADAM OMARY said : “Perhaps only in a world of material abundance, safety, and comfort—where mood swings and relationship conflict represent life’s biggest challenges for many otherwise healthy people—do we begin to treat such adversity not as fate but as a problem to be solved.”……………
YEAH ! THINK ABOUT THAT….THEN GET OFF YOUR……………….couch !?