MARK HUMPHERY-JENNER: The Budget of broken promises will leave everyone poorer

Anthony Albanese and Jim Chalmers lied in 2025 when they said they would not hike CGT or change property taxes. It looks like a classic rug pull.

The changes include a new minimum CGT rate of 30 per cent, replacing the long term capital gains tax discount with a system of inflation indexing, and removing negative gearing, which allowed people to offset investment expenses against other income.

Chalmers and Albo did not take these changes to the election in 2025. They explicitly said they would not make these changes.

However, they have claimed that they “changed their view” on appropriate tax settings and did so for the right reason, allegedly to improve housing for first home buyers. But, is there any substance to Chalmers’s claims?

It turns out that Chalmers is once again gaslighting us. So much is abundantly obvious from the fact that CGT hikes encompass shares and startups, including a minimum 30 per cent CGT on all investments and double taxation on gains that trusts distribute to companies.

Let’s unpack this. And, specifically unpack why the changes harm younger people and worsen potential housing issues.

The changes entrench inequality

The argued reason for the changes is to level the playing field for younger generations. Older generations were able to build wealth at the lower tax rates, compounding returns over decades.

But, now, younger generations will be deprived that opportunity. Moreover, existing investors see their existing arrangements quasi-grandfathered.

Both younger and older generations are now worse off. But, in relative terms, the changes harm younger people even more than they do older people.

Will the changes really displace property investors

Albanese and Chalmers have argued that the changes will give an opportunity to first home buyers. Presumably, they believe that investors will stop investing in property.

But, there are several problems with their logic: while it is true that the returns to property are now lower, they are also lower for every other asset class. In short, investing in anything now pays less.

But, in relative terms, property is less badly impacted than shares. And, this makes property relatively more attractive.

Let’s unpack this. Under the proposed changes, CGT is based on real capital gains. So, if an investment grows in line with inflation, there is no real gain, so there is no tax.

Thus, if you lever an investment that grows at inflation, you get returns from leverage but no CGT. Now property — especially apartments — typically grows slower than shares.

To see this, suppose property grows at 2.5 per cent, in line with the RBA’s target. Shares might grow at 7 per cent a year. But, with property you can borrow 80 per cent. This is especially attractive if it is your second property and your first one is positively geared.

The property leverage takes your 2.5 per cent capital gain to 12.5 per cent gain on your initial investment. But, since the underlying asset has only grown in line with inflation, you have no CGT. By contrast, that same share investment, will be taxed on the 4.5 per cent return above inflation.

To be clear, people can still negatively gear the interest on margin loans, it appears. However, margin loans also involve higher risk. Inexperienced investors should exercise extreme caution.

This leads to the related problem: someone who is not on the property ladder could sensibly have used shares to grow their wealth so they could buy a property. But, now that is more difficult: taxes on shares will be higher, undermining the person’s ability to save.

The changes undermine supply

Chalmers and Albanese have tried to argue that the changes will not harm supply. They have asserted that this is because negative gearing remains for new builds. Thus, investors can offset their expenses if they buy a new off-the-plan apartment.

There’s just a little problem: the secondary market. If you are making a loss on a new build, then you presumably require a capital gain for it to be worthwhile. Otherwise, you would be better off leaving the money in the bank or in an ETF.

But, off-the-plan apartments have notoriously bad price growth. This is partly because they typically sell for more than an older established apartment. And, this in turn is because the developer requires high prices to make the build viable.

But, if you expect anaemic-to-zero growth on an apartment that incurs a loss, it is not a good investment.

The net result is that there is less incentive to create supply because the buyer pool would shrink.

Deadweight loss

The tax arrangements thus create a deadweight loss. Existing investors are worse off than they were. Younger people are worse off because they face higher taxes and could not compound at the lower rate that older people could.

The Government will be worse off because of the very obvious ways that people will shift towards long term buy-and-hold strategies, and shift aware from growth generation and entrepreneurship. No one gains.

Where does this leave us?

The Government’s proposed changes not only are a broken promise but they are not even a promise “for the right reason”. The Government’s changes actively destroy wealth.

They create a deadweight loss in which everyone is worse off. Hopefully people see through the government’s lies and gaslighting.

Mark Humphery-Jenner is an associate professor of finance at UNSW