Some of the nation’s biggest names in economics will advocate changes to the capital gains tax concession in a series of public parliamentary hearings next week, increasing pressure on Treasurer Jim Chalmers to deliver major tax reform in his May budget.
Former Treasury head Ken Henry, former Reserve Bank governor Bernie Fraser and Bill Kelty – a key economic advisor to Bob Hawke who also served on the RBA board for almost a decade – will front a special Senate inquiry that is examining the 50 per cent concession on gains held for investments such a shares and property for at least 12 months.
Also due to face the inquiry will be prominent independent economist Saul Eslake, funds manager Geoff Wilson and representatives from the Organisation for Economic Cooperation and Development, and all are expected to back changes to the current tax arrangement.
A change to the concession, introduced by the Howard government in 1999 and which critics have claimed has contributed to higher property prices, is being examined ahead of a budget that Chalmers has promised will deliver savings, policies to lift productivity and tax reform.
Fraser, who was the head of the federal Treasury when the original capital gains tax was introduced by then-treasurer Paul Keating in the mid-1980s, said some sort of change had to be made to the current concession as it rewarded wealthy investors at the expense of young people who could not get into the property market.
He said there was a range of issues that had to be addressed to make housing more affordable, arguing that reform to capital gains was just one area that the government could do.
“It may not help a lot but it would help,” he said.
“I think governments have to do whatever is possible to help make housing more affordable rather than just increase the value of assets for people who are already wealthy.”
The OECD, headed by former Liberal finance minister Mathias Cormann, will also give evidence supporting an overhaul of the CGT concession.
In its most recent report into the Australian economy and tax system, released in January, the Paris-based think tank said a change to capital gains concessions would help take heat out of the nation’s property market.
“Removing some of the favourable tax treatment of residential property ownership, including capital gains tax concessions and negative gearing, would help to cool demand and could help to mitigate upward pressure on house prices,” it argued.
The OECD’s research on capital gains across the globe has found they are “disproportionately concentrated” among high-income earners. It noted last year that in Australia, the top 0.89 per cent of taxpayers accounted for 29 per cent of all capital gains.
The International Monetary Fund this week said tax breaks “including superannuation concessions and capital gains tax discount” could be phased out to make the nation’s tax system more equitable and efficient.
Chalmers has refused to confirm if a change to the capital gains tax concession but there is support within parts of the Labor Party for the government to act.
There is a range of options for changes to the concession. In his 2010 tax review, Ken Henry supported a reduction of the concession to 40 per cent while some proponents have argued a cut to either 33 per cent or 25 per cent.
Another option is to restrict the concession to certain asset classes, such as shares or to newly constructed properties.
The Coalition has already vowed to oppose any reforms. New shadow treasurer Tim Wilson said cutting the concession would add to house prices.
“I want to incentivise people to back themselves. When you add new taxes onto housing, it just decreases the new housing, increases [prices] and it decreases the volume of homes for ownership,” he said.
The Senate inquiry is being headed by the Greens, which wants the concession scrapped.
Greens treasury spokesman Nick McKim said the line-up of people prepared to call for a change to the capital gains tax concession was proof that the government should move.
“The program includes plenty of eminent witnesses and a lot of expertise. Momentum for change is clearly building. There is a broad consensus that the CGT discount in its current form has run its race. Hopefully time is up for Australia’s most unfair tax break,” he said.
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Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.