Source : Perth Now news
Australians are walking away from investing after the federal budget cuts to negative gearing and changes to capital gains taxes disproportionately hit the very people they are supposed to be helping.
A survey of 1,500 Australian investors for Global X found families with children at home were more likely than any other household type to scale back their investment intentions following the Budget.
Global X chief executive Alex Zaika told NewsWire these policy changes make the system needlessly complicated.
“Prior to the budget, it was very clear from a capital-gains tax perspective whether you were paying taxes on your full gain or half the gain and it was just at your marginal tax rate, but now people have to think about indexation,” he said.
Mr Zaika said the change was almost immediate, as Australians swapped towards income based assets.
But he said the changes will have a bigger impact with a lot of Australians now choosing to avoid investing altogether.
“When we look through the GXIQ report across potential and current investors, a lot of people simply do not know what the changes mean and a lot of people have said they won’t invest at all,” Mr Zaika said.
“It takes away from what we want people to do, we want people to invest and invest early because the power of compounding is obviously huge.”
Treasurer Jim Chalmers sweeping changes in the May budget were sold as the “most important and ambitious” reforms in decades, with the aim of making the tax system “fairer and stronger for workers, businesses, first home buyers and future generations”.
Mr Zaika said the budget has failed to help these people that it was supposed to be helping.
“The challenge that I see right now with these new budget changes where they have implemented a 30 per cent minimum tax, it has a really negative impact on those people we are trying to help most,” he said.
“So the government has talked about first-home buyers and a lot of first-home buyers will invest into shares and exchange-traded funds to build their deposit.”
“But now they are paying a 30 per cent tax – so for lower income people they are paying more if they invest compared to their income tax bracket.
“So they are being unfairly punished by this budget.”
Mr Zaika said the government was making it more complicated to invest.
Despite the budget having its critics, the International Monetary Fund (IMF) has given the Albanese government’s controversial tax changes the tick of approval, calling it a “positive change” to the system.
Explaining its latest report card on the Australian economy on Thursday, IMF mission chief Paulo Medas said the changes to capital gains and negative gearing taxes would be gradual because of the way the changes had been “grandfathered” in.
“We think that the change that’s eliminated some of that negative gearing, and some of the incentives actually, is good because you’re going to be putting incentives now, more balanced in terms of the resources moving to other sectors of the economy,” Mr Medas said.
“In that respect, that’s where we think it’s a positive change to the tax system, and hopefully helps on this affordability issue in the housing sector.
“I would also note that the changes the government made are very gradual. There’s a lot of grandfathering and carve-outs.”
What changed on budget night
Leading the tax reforms were changes to negative gearing and the capital gains tax (CGT) discounts.
Under the changes to CGT, the 50 per cent discount has been scrapped and returned to indexation, while negative gearing will now be restricted to new builds.
Current investors will be given a one year grace period before the changes take effect for assets bought after July 1, 2027.
That gives people about 12 months to sort out their finances before the new rules kick in.
But some say that’s not enough time, especially for people who aren’t across all the details yet.
While the focus has been on housing, the tax changes are across all assets including shares, bonds, collectibles and arts.
NED-7083-Housing-price-changes
Investors will be expected to have their assets valued independently or by the tax man by that date for tax purposes.
This will be done at the investors’ cost.
“Since 1999, house prices have risen over 400 per cent, more than twice as fast as average incomes,” Mr Chalmers said on budget night.
“Our tax changes will help about 75,000 Australians achieve the dream of home ownership”.
In total it is expected to raise $3.6bn in 2027-2028 financial year.
Mr Zaika says if people simply stop investing because they’re confused or worried about extra tax.
He said while the opportunity for Australians has changed, it still makes practical sense to invest.
“Despite the tax changes, if someone is paying tax they’ve made a profit and they are in a good position,” Mr Zaika said.
“Paying tax is a positive thing because you are making money. The sooner you start investing the better off you will be because the power of compounding is truly extraordinary.”
