PAUL MURRAY: Budget incompetence of epic proportions is no surprise as Labor government exposed

There have been two longstanding no-go zones in the politics of Australian tax policy: the family home and death duties.

The implicit understanding has been that any government which tried to impose either would be gone at the next election.

While Jim Chalmers’ bungled negative gearing changes have probably moved the purchase of a family home even further from the grasp of prospective first buyers — he’s not taxing it, yet — the 30 per cent capital gains tax on discretionary trusts in wills is a death duty in disguise.

The tax hit is triggered by the death of the person passing on an inheritance, so what else could it be?

Chalmers says that people who object to the dead hand of government reaching into the wills they have made for their offspring’s benefit are “unhinged” and part of a “scare campaign built on lies”.

Sorry? Who are the liars here? Who’s flogging a deeply flawed Budget built around broken promises on negative gearing and capital gains?

A discretionary trust is a simple way of trying to ensure that a family’s inheritance is spent as wisely as possible by providing options and guard rails for its dispersal.

Many people who include such a trust in their wills may not have very much to pass on, but they sure don’t see why the government should get 30 per cent of it, effectively diminishing intergenerational wealth.

And once that implicit understanding about not taxing inheritances is breached, Australians will have every right to fear that further death duties are in play.

If you are not one of the hundreds of thousands of people directly affected, imagine this was your own family, with all the complexities of modern life involved in making decisions that enact well into the future.

They planned their affairs in good faith, followed the rules as they existed, made long-term decisions based on stability and the government then changes the law after the fact. After promising not to.

No wonder people feel betrayed.

When they wrote their wills, there was no suggestion that the government would target these trusts — built on an individual’s savings discipline — to fix Labor’s over-spending problems.

Such wills are not cheap to set up. Many people will have to go to the trouble and expense of getting further legal advice on how their will is affected and then even further cost — and the risk of attracting stamp duty in some States — if they have to be changed.

But, as of this week, they now need to wait for what Chalmers says will be further “consultations” to try to work out the full effects of the new policy — something that should have been completed with certainty before Budget day.

So maybe not so “unhinged”, after all.

Labor insiders say that Albanese has been in favour of death duties since he was a young Trot on the rise as assistant State secretary of the Labor Party in NSW. Early this year, he got Chalmers to dust off a suite of tax changes dreamed up by former leader Bill Shorten for the failed 2016 and 2019 election campaigns.

Shorten had excluded testamentary trusts from his capital gains tax package which was repudiated by voters at the 2019 “unloseable” election. But this time, Labor decided to go for broke.

For years voters have been warned about the Marxist instincts of our most left-wing Prime Minister. Now all Australians can see it in full bloom.

But Albanese has no electoral mandate for these changes. If he wanted to break his promises, he needed to follow the John Howard template with the GST and take them to the people at an election — not ambush them shortly after one.

While the capital gains tax changes on trusts are upsetting for many families, they are much worse for aspirational Australians wanting to grow a business.

It’s no surprise that this generation of Labor MPs stumbled into this mess. They go straight from university into the office of a union or a Labor MP. And they then get a factional ride into the parliament.

Long on ideology. Short on life experience. They have no idea how free enterprise works. How important it is to a flourishing economy. And it shows.

Part of the Rudd Labor government brains trust who had his eyes opened in the private sector, Lachlan Harris, has broken ranks to damn the Budget’s capital gains tax changes which he says would create “economy-wide” perverse incentives.

Kevin Rudd’s closest adviser argued that a policy designed to create equity between generations would actually make it “much, much harder for young Australians to start businesses, to work in small businesses, and for those businesses to raise money”.

He warned that it wasn’t only lucrative start-ups, but small businesses everywhere.

“I personally think we need to reverse that measure to ensure the CGT change only applies to residential property,” Harris said. “I really would urge the PM and Treasurer to consider carefully whether this policy needs to be significantly adjusted so that a lot more consultation can occur over a long period of time.”

Entrepreneurs are now confronted with the prospect that after many years of working for pennies to get a start-up established, finally monetising their brilliant ideas would attract up to 47 per cent tax.

That makes us uncompetitive with countries such as New Zealand or Singapore, where the CGT rate is zero. So why stay here?

But it’s not just the glitzy new tech businesses that get hit.

What Harris knows — but this Budget ignores — is that the practice of building up the books of a small business to reap the benefits by later on-selling is fundamental to the Australian entrepreneurial spirit.

It’s what “having a crack” is all about.

The widespread social media memes posted by small business owners ridiculing Albanese as their new 47 per cent partner are damaging Labor among the very people the Budget was meant to favour — the young.

But it’s the unintended consequences of the negative gearing changes affecting home ownership — also aimed at the young — that are the Budget’s biggest mistake.

Property investors like Albanese and most of his Cabinet are protected by the grandfathering clause after July, 2027, which is patently unfair to future generations.

Former WA Labor Premier Brian Burke — who was also the State’s treasurer for five Budgets — says the Albanese Government’s changes risk creating the biggest housing crisis in his lifetime.

As Burke explains it, the grandfathering of existing negatively-geared properties creates an asset class which is highly desirable and will not be traded because of its tax benefits. That effectively takes those homes off the market.

Even worse, he says, is that the decision to allow future negative gearing only on new builds will draw investors there, crowding out the young homebuyers Labor was trying to help and pushing up prices as they compete.

The problem Labor has failed to address adequately is supply, Burke says. It’s existing policies like the five per cent deposit for first home buyers — with the government picking up the other five per cent — stimulated demand and further push up prices.

Burke says if the Budget had addressed the supply issues with things like more trade training and assistance for building companies who are unable to expand to meet the booming demand, the changes would not have been so damaging.

He now joins a growing list of Labor luminaries calling for a reworking of the Budget. Even that risks political damage.

What they won’t say, but I can, is that no competent government makes mistakes like this. It clearly indicates that important parts of the Budget were not constructed on Treasury advice.

Rather, these blunders appear to be the rushed work of a Cabinet sub-committee desperate to fill the revenue void caused by this Treasurer’s ingrained over-spending.

In a column back in March, I wrote that teal voters in wealthy seats were comfortable enough to indulge themselves in fashionable “causes” and would only wake up when revenue-strapped Labor came after their money. Didn’t take long.

But it was surprising that Curtin teal MP Kate Chaney claimed credit for Labor’s new tax changes in this week’s Subiaco Post newspaper.

“Labor had been ‘backed into a corner’ by the media on negative gearing, she said, and it was her and other teals that had put it back on the agenda,” the Post reported.

“Reform can’t happen unless we’re willing to put ideas on the table and test them,” Chaney said, also owning the abolition of the 50 per cent capital gains tax discount.

Chalmers’ fifth Budget was written in hubris, Labor’s adopted language since last year’s massive election win to take advantage of the coalition’s dysfunction.

At a time of great political flux in conservative politics, this Labor Budget may turn out to be one of the most consequential ever – for all the wrong reasons.

The political divisions are now very starkly drawn.