Government cops grilling from small-business community over controversial tax reforms
The Labor government under prime minister Anthony Albanese (pictured, top) intends to push through legislation for its controversial capital gains tax (CGT) and negative gearing changes before the July parliamentary break, according to an AFR report.
Sources suggested the move is part of an attempt to reduce the window of opportunity for a parliamentary inquiry amid growing dissent over the wealth tax changes.
Labor treasurer Jim Chalmers, in last week’s Federal Budget, confirmed that the current 50% CGT discount will revert to the pre-Howard inflation-linked model with a minimum 30% tax rate. Negative gearing has been scrapped for existing properties, while eligible new builds still retain the benefit. These two combined policies are being marketed as a way of returning balance to the housing market.
The case for change
Proponents of change argue the current settings distort the housing market in favour of investors at the direct expense of owner-occupiers and renters.
Under existing negative gearing rules, investors can deduct rental losses against their ordinary income – a benefit unavailable to those purchasing a home to live in. The 50% CGT discount available on assets held for more than 12 months compounds the advantage, encouraging speculative holding over productive investment.
Housing affordability advocates point to data showing that combined, the two concessions cost the federal budget more than $23 billion annually, arguing the revenue could be redirected to social and affordable housing supply.
Economists at the Grattan Institute and others have long contended that removing or limiting negative gearing would reduce investor demand and place modest downward pressure on prices in major capital cities. Many in the industry note that when an investor can leverage tax concessions to absorb holding costs, it structurally advantages them in competitive auction environments.
Industry pushes back
However, opponents to change have been extremely vocal. They warn that reform will reduce rental supply at exactly the wrong moment.
With vacancy rates at historic lows and rents rising sharply in Sydney, Melbourne and Brisbane, pulling back investor incentives risks driving landlords out of the market before alternative supply materialises.
Real estate and lending groups argue that negative gearing does not inflate prices so much as it incentivises construction of new rental stock. They point to the mid-1980s, when the Hawke government temporarily abolished negative gearing and rents rose sharply in key markets before the policy was reversed.
Earlier this week, Property Council chief executive Mike Zorbas argued that reducing the tax burden on construction would be more effective in improving affordability than adjusting investment tax settings.
"I think these tax hikes are a big roll of the dice," Zorbas said. "They do create uncertainty, and we've got rising labour costs, rising materials costs, borrowing costs, all that volatility coming out of the Middle East. I genuinely hope that this series of measures does support the creation of new houses, but our modelling conducted over many years suggests it won't."
Broker weighs in
While many in the mortgage broking space are concerned over how these changes will impact their clients, not all brokers are catastrophising.
Anmol Dhinga (pictured, below), director and mortgage broker at WIN Financial Group, says the CGT and negative gearing changes have done little to rattle his clients.
"Nothing's changed to be honest," he said, pointing to a client base of long-term property investors who think in decades, not electoral cycles. "We play a long-term game. We want to hold our properties for 10, 15 years to come. Whatever happens to CGT, multiple law changes over the years – we're not fazed by it."
For Anmol, it's simple: "People will just learn the new rules of the game. People won't stop playing."
But in charging ahead with the controversial reforms, the Albanese government is taking on significant political risk. Former Labor leader Bill Shorten took a sweeping policy agenda to voters that included curbing negative gearing and reducing the capital gains tax discount. He proceeded to be eviscerated in the 2019 elections.
Such was Shorten’s defeat that Albanese pledged not to tinker with CGT and negative gearing tax settings before the May 2025 election – a promise he has now broken.
Labor needs The Greens’ support in passing the legislation through the Senate – which is likely, given the minor party has been pushing for wealth tax reforms.
Labor trolled by small-business owners
The Federal Budget also drew significant criticism from the small-business and startup community.
Social media is awash with memes from founders painting the government as their newest shareholder.
Joseph Daoud, mortgage broker and founder of It’s Simple Finance, thanked (presumably with a hint of sarcasm) Albanese “for all the work you've done for all self employed individuals in Australia. You've really made it worth all of our time!”
Peak body for small businesses the Council of Small Business Organisations Australia (COSBOA) has cited concerns over the way many small business owners structure their retirement.
Unlike salaried workers who make regular superannuation contributions, many operators have spent years reinvesting profits back into their business, forgoing wages and super with the expectation that the eventual sale of the business would fund their retirement. Scrapping the 50% CGT discount makes that exit strategy significantly more costly.
“Small businesses should not become collateral damage in tax changes that do not reflect the reality of how they operate,” said chief executive of COSBOA Skye Cappuccio (pictured, right) in comments sent to MPA.
"These are genuine small businesses that employ Australians, support local communities and have often been built over decades through significant personal and financial sacrifice.
"These are not abstract tax settings for small business owners. These decisions are deeply personal and directly tied to retirement planning, succession planning, family livelihoods and the future of businesses built over generations."
Cappuccio was equally critical of the proposed minimum 30% tax on discretionary trust distributions, pointing out that the rate exceeds the existing 25% small business company tax rate – creating what she described as pressure for costly and complex restructuring that many operators simply cannot afford.
"The reality is that restructuring a small business is not simple, fast or inexpensive," she said. "For some small businesses, the cost of understanding and implementing these changes alone will be substantial. That is money and time being pulled away from jobs, technology, growth and productivity."
COSBOA is calling on the government to modernise existing small business CGT concession thresholds, explore trust exemptions similar to those available to primary producers, and commit to further consultation before any changes are legislated.
"Australia cannot build productivity by increasing the tax burden on small business," Cappuccio said. "If we want a stronger economy, we need policies that encourage entrepreneurship, investment and long-term business growth."
According to the AFR, propsed changes to trust taxes will take longer to develop and may not be legislated until later this year.
