Business groups of all shapes and sizes have united in their mission, setting their hair on fire in response to the central pillar of Jim Chalmers’ federal budget.
The chorus of detractors hasn’t faded since budget night, but has risen to a full throated roar just as the treasurer introduced the tax legislation to federal parliament on Thursday.
Sure, the whole point of any lobby is that it reflects the self-interest of those represented.
But business groups’ understandable gripe is they feel they have been winded by a government who provided little hint of how extensively it would alter a large part of the tax system. And the decision to thrust the legislation through quickly has rendered detractors wrong-footed in combating it.
The budget’s widespread unpopularity has even ruffled the feathers of two Labor premiers – NSW’s Chris Minns and West Australia’s Roger Cook.
For the most part, the tax changes the budget is seeking to ram through sit well with economists because its central element – seeking to tax all asset classes equally – is structurally hygienic.
There is a neatness about it that appeals to theorists.
But the number and the ferocity of its detractors, and the difficulty the government has faced selling its policy, probably means its best features will be whittled down by carve-outs.
The overarching criticism is that taxing investment in all assets equally is essentially a tax on entrepreneurialism.
This is because it fundamentally changes the risk/return profile of investment.
And innovation sits at the riskier end of the spectrum. Given we are sitting on the cusp of one of the largest shifts in technology with the rapid rise of AI, discouraging risk seems shortsighted.
We already have an economy that is disproportionately dominated by non-technical industries such as retail mining and banks, with a relatively small technology sector.
Tech entrepreneurs, scientists, mining prospectors and small business owners are now popping up like mushrooms on social and mainstream media, declaring the removal of the capital gains tax concessions will blow up their business.
Over the past week or so the government has responded to criticism by saying it is open to consider carve-outs for start-ups and some small businesses.
But as some have opined in recent days, the introduction of carve-outs gets messy. For example, a coffee shop may present itself as a tech company if it develops an app to take online orders.
Introducing some carve-outs will generate an avalanche of businesses or industries that push for similar treatment. So where does it stop?
Big business is howling about our international reputation and how we risk becoming sovereign kryptonite for foreign investors.
Bran Black, the chief executive of The Business Council of Australia – which is the big end of town’s lobby group – wrote anecdotally about sitting next to a US investment banker on a flight, who was concerned about the changes to capital gains taxes and Australia’s surfeit of regulatory red tape.
Anthony Albanese seems unmoved by such tactics or arguments and is ploughing ahead with the main thrust of the tax changes.
Another hair on this tax policy applies to investing in shares. The government will allow capital gains on shares to be indexed to inflation, but losses on shares (to offset those gains) will be treated nominally – not indexed to inflation.
Complicated as this sounds, it just means that investing directly in shares could result in a much higher tax rate on those investments – potentially higher than 60 per cent, according to a number of experts.
This introduces a distortion that may force investors into avoiding direct share investments and into investing in exchange-traded funds (which net off gains and losses).
The only thing the lobby groups are not screaming about is the removal of the capital gains tax discount on established investment property. This policy is already having its desired effect of deflating residential home prices and improving the chances of younger Australians to get a foothold in the housing market.
But the cacophony of protest about the rest of the tax changes echoes loudly, and detractors will get even more oxygen when the government fronts up to a three-week Senate inquiry next month.
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