Changes to the capital gains tax (CGT) discount are already having an impact on wealth inequality, according to economist Greg Jericho, who argues that vested interests are running scared. The policy has not even become law yet, but its effects are being felt, despite conservatives claiming the discount was not the cause of the housing affordability crisis.
Senate Committee Testimony
Last week, Jericho, chief economist for the Australia Institute, appeared before a Senate committee into the tax changes. He stated that his research showed the CGT 50% discount was 'ground zero of the housing affordability crisis.' Opposition finance spokesperson Claire Chandler challenged this, citing economist Richard Holden's argument that deregulation of the banking system by Paul Keating, the Reserve Bank of Australia's inflation targeting, and the Basel I and II banking accords played a larger role.
Jericho countered that dwelling prices remained stable relative to household income during those periods and only began to rise after the CGT discount was introduced in 1999. He dismissed the idea that the 1999 changes are still impacting the property market 27 years later, noting that the discount is still in effect.
Impact on House Prices
Despite claims that the CGT discount had no impact, Jericho pointed to recent data showing house prices falling $100,000, or 10% nationally, and 7-8% in Sydney and Melbourne over the year to November. He argued that the proposed changes are already influencing the market.
Who Benefits from Capital Gains?
Opposition parties, including One Nation, have argued that capital gains are vital for young people. Senator Pauline Hanson claimed that 'the largest capital gains cohort is younger,' with over 215,000 under-35s affected. However, Australian Taxation Office data for 2023-24 shows 1.6 million people had capital gains, of which 369,000 were under 35. In contrast, nearly 400,000 over-65s had capital gains, and the largest cohort is people in their 50s.
Younger people also earn much less from capital gains on average. For those under 35, capital gains account for less than 1% of total income, compared to 10% for those over 65. Capital gains are concentrated among the richest: 27,964 people with incomes over $1 million (0.2% of all income earners) took in 38% of net capital gains.
Occupational Distribution
Data shows that higher-income occupations have a higher percentage of people earning capital gains. Jericho noted that while some young professionals like financial advisors or anaesthetists may benefit, they are a very small minority. He questioned One Nation's concern for minorities, suggesting their motives may lie with older, richer constituents.
Jericho concluded that for 30 years, governments have favored older, wealthier cohorts. Now that a government is finally addressing intergenerational wealth inequality, vested interests are upset. However, weekend house auction results and official taxation data show their arguments are hollow.
