Flight Centre founder Graham Turner says CGT changes will prevent young innovators climbing business ladder

Flight Centre founder Graham Turner fears Labor’s capital gains tax changes will only hurt aspiration for average-income earners and encourage new forms of tax minimisation after the head of Treasury claimed the reforms will see the richest pay $400,000 more in tax.

“The point is that the top one per cent, that’s one thing, but people who have aspiration to do well and to build a business or to build wealth and that, particularly your start-ups, it will be a bit of discouragement,” Mr Turner told The Nightly on Friday.

This would also lead to more elaborate tax minimisation strategies to get around the CGT changes that are yet to pass the Senate.

“It’s obviously quite complex. People who can afford to will have advisers who will help them minimise their tax,” Mr Turner said.

“The beneficiaries from all these complex tax changes will be the tax advisers.”

He made the comment after Treasury secretary Jenny Wilkinson claimed the richest one per cent of Australians would pay $400,000 more in tax as a result of the 50 per cent capital gains tax discount being scrapped and replaced with a new minimum 30 per cent tax on inflation-adjusted gains from July next year.

“If the proposed tax settings on capital gains, negative gearing and trusts had been in place since the turn of the century, the lifetime benefit of these arrangements for the top one per cent of lifetime income earners would have reduced from around $700,000 to around $300,000,” she told an Australian Business Economists lunch in Sydney on Thursday.

“The proposed CGT treatment will more accurately adjust for inflation and should improve the efficiency of capital allocation on this account.

“Applying the new arrangements to income across all assets is important from a tax design perspective to avoid introducing a significant new distortion in the tax system.”

Tax accountant Ben Johnston, the director of Johnston Advisory, said the richest taxpayers Ms Wilkinson targeted in her comments would be the most likely to pay for sophisticated tax minimisation advice or even become a resident in another country for tax purposes.

“The higher income earners that are more sophisticated investors and are paying for advice, they’re just going to pivot to different avenues,” he said.

“She’s focusing on the top one per cent showing the scale of the benefit they were getting but it’s somewhat ignoring the behavioural response that the high-income earners will have.”

Under Labor’s changes, negative gearing would be grandfathered for those who owned a property before Budget night as the tax break for landlords making a rental loss was restricted to brand new properties from July 2027.

Mr Johnston said future investors, who would have otherwise bought investment properties, could end up getting margin loans to buy high-risk shares, so they come could claim interest payments for an income-generating asset, as a tax deduction.

“It’s going to push younger Australians and people trying to forge their own retirement, where they typically turned to property, they’re going to turn to potentially other asset classes that come with more risk in it,” he said.

Wilson Asset Management founder Geoff Wilson said those who already owned investment properties would be more inclined to keep negatively gearing their homes, instead of expanding a business, to reduce their taxable income and avoid paying the top marginal rate of 45 per cent above $190,000.

“An investor holding a grandfathered negatively geared property may quite rationally decide it is far more tax-effective to keep that asset than to sell it, crystallise a larger capital gains tax liability, and reinvest the proceeds into shares, venture capital, a small business, or another productive investment,” he said.

“The Government says it wants capital to flow into productive areas of the economy. Unfortunately, these changes create a strong incentive for investors to do the opposite: hold on to existing assets because the tax cost of selling becomes materially higher.

“That is not tax avoidance. It is rational behaviour in response to the incentives created by the tax system.”

Mr Wilson, whose group manages $6 billion in funds, argued Treasury had wrongly assumed investors would put their money into the highest-value assets after the CGT changes.

“That is not how investors behave. Investors respond to incentives,” he said.

“If you increase the tax on capital gains, people will naturally look for ways to defer gains, avoid realisations, hold existing assets for longer, or direct capital into structures that deliver a better after-tax outcome.

“It is naive to suggest these changes will improve capital allocation. They will do the opposite.”

Freelancer chief executive and chairman Matt Barrie said Labor’s plan to impose a capital gains tax on businesses with annual turnover above $2 million would simply see entrepreneurs head overseas to nations without a capital gains tax, like New Zealand and Singapore.

“You’ll get capital flight, businesses being unable to raise money, and some of our best people taking their ideas overseas,” he said.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers are also presiding over the highest level of Federal Government spending since 1986-87 outside of COVID.

“Albanese seems intent on dismantling every pillar of national resilience, and this robber baron tax grab wrecks Australian ambition, industry and investment,” Mr Barrie said.

The Senate standing committee on economics on Thursday established a three-week inquiry into Labor’s tax changes that is due to report on June 22 when the Senate resumes.