Changes To Capital Gains Tax May Generate Additional $5 billion

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The Australian government is finding ways to address the projected $50 billion budget deficit. One of its actions is redesigning the anticipated stage-three tax cuts, specifically decreasing the strength of the capital gains tax (CGT) discounts.

A report published by the Grattan Institute lists several options that could help the Australian government address the looming $50 billion budget deficit. According to the report, these options should be considered as the government determines the best way to redesign its stage-three tax cuts.

According to the report, the country needs to decrease its deficits by 1.2% of GDP per year. If deficiencies are not slashed, Australia faces a rising debt interest bill that adds a further $10 billion to the deficit every year by 2033 added to the existing $50 billion deficit. 

Treasurer Jim Chalmers noted that the government is seriously considering Grattan’s recommendations. He added, “There are some things that we wouldn’t come at, but I think the overall point that the Grattan Institute’s making in that report is that we do have a structural issue in the budget.”

One option the government is considering, added Chalmers, is cutting tax concessions for earnings from superannuation on balances above $3 million to half. Should this take effect, it may save the government an additional $2 billion per year and address the glaring loophole of supers.

Another option the Grattan report pointed out was revisiting the CGT discounts. According to Danielle Wood, chief executive for the Grattan Institute, the 50% CGT discount for investors was ‘ripe for reform’.

“While not true given high inflation at the moment, over the previous 20 years, the CGT discount on average overcompensated property investors for the impacts of inflation,” Wood added. 

The report also added that should the CGT discounts be slashed to half or 25%, it may help the government save about $7 billion from the budget deficit.

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