Milton Dick (Speaker) | Link to this | Hansard source

The question is that the bill be agreed to, and, in accordance with the resolution agreed to earlier, the question now is that amendments (1) to (4) circulated by the member for Hume be agreed to.

Opposition's circulated amendments

(1) Clause 2, page 2 (table items 2, 3 and 4), omit the table items.

(2) Clause 2, page 2 (table item 5), omit the table item.

(3) Schedule 1, page 3 (line 1) to page 47 (line 24), omit the Schedule.

(4) Schedule 2, page 48 (line 1) to page 53 (line 11), omit the Schedule.

Angus Taylor (Hume, Liberal Party, Leader of the Opposition) | Link to this | Hansard source

Australians need cost-of-living relief after four years of Labor's raging homegrown inflation. They do need cost-of-living relief, with a broken economy that we saw yesterday, productivity down five per cent and the standard of living down almost four per cent. We see that the only thing left growing the economy is record levels of migration. So we support Labor's $250 annual income tax cut. We support Labor's $1,000 deduction for work related expenses. These cost-of-living measures could have passed this parliament easily, with bipartisan support. But tricky Labor and this tricky Treasurer have deliberately tied these measures to their toxic taxes, using a single piece of legislation, an omnibus bill, for their tax cuts and toxic tax increases. They could have put forward separate bills—one bill for tax cuts and one bill for tax increases—but they didn't, and what Australians see is a bad faith government playing a cynical, tricky game, because that's what they do every single day of the week.

Back in 2022, on the day he was sworn in—the day he was sworn in—the Prime Minister said:

I look forward to leading a Government … that doesn't seek to have wedges …

I reckon he's eaten a lot of wedges! But here is the truth: the Prime Minister's word is never his bond—never, never. Ramming this 'wedgislation' through the parliament without sufficient scrutiny is an act of political expediency—an act of political bastardry! Labor is more interested in headlines than in helping Australians. That's what you get when you get a media adviser as a Treasurer. And Australians know it.

The coalition's resolve is clear: Labor's toxic taxes need to be axed. That's why we don't support Labor's legislation and we have proposed an amendment today.

Now, for simplicity, there are two schedules we seek to retain in the bill. We seek to retain schedule 3: the WATO $250 annual income tax cut would stay in the bill. We support it. We also seek to retain schedule 4—the standard $1,000 deduction for work related expenses. We support that as well.

However, we oppose Labor's toxic taxes on Australians. So there are two schedules we seek to omit from the bill: schedule 1, the CGT amendments—we don't support those, of course. They punish aspiration—that's what they do. Again, we seek the removal of schedule 1 from the bill. We also seek to omit schedule 2, the negative gearing changes—we don't support those changes as contained in schedule 2. The government's own budget papers, on page 158, explicitly admit that these combined toxic taxes will reduce housing supply and push up rents. The Treasury secretary has had to admit it, because it's there, plain, for all to see. We seek the removal of schedule 2 from the bill as well. Put simply, we support tax cuts, but we don't support Labor's toxic taxes.

As the government is aware, during my second reading speech on Tuesday I moved another amendment in my name, calling on the government to immediately pass laws to end Labor's automatic tax increases using bracket creep, and to implement a tax-back guarantee by indexing the personal income tax brackets to inflation. If the Albanese government doesn't support our two amendments, it means two things: (1) Labor is imposing higher, aspiration-killing taxes on hardworking Australians; and (2) Labor is for inflation pushing more Australians into higher tax brackets, so they can take more of their income as tax. We know that's what they want.

The ball is in Labor's court. The Albanese government should stop its toxic taxes. The Albanese government should support the coalition's bigger and better personal income tax cuts.

Jim Chalmers (Rankin, Australian Labor Party, Treasurer) | Link to this | Hansard source

That entire five-minute rant from the opposition leader can be summarised in one sentence. The coalition is voting against tax cuts once again. Once again, not having learnt from the first time they made this mistake, they're all lining up and limbering up to make the same mistake that they made 15 months ago. And that's the reason why the Opposition Leader was shaking. That's the reason he was shaking, because, the last time he got this wrong, he sacrificed a whole generation of backbenchers. And now they want to do it again.

This bill will implement the most ambitious tax reform package for a quarter of a century—a package that cuts income taxes for every Australian worker, again and again, and they're against it; a package that makes it easier for people to buy their first home, and they're against it; a package that better aligns the treatment of labour income and asset income, and they are against it.

These reforms are brought together in one bill because one part of the bill helps fund the other part of the bill. When I introduced this bill, we said it presented a choice: a choice between cutting income taxes for Australian workers or keeping them higher, a choice between standing with first home buyers or locking more Australians out of the market, a choice between taking our intergenerational responsibilities seriously or defending a broken system that locks too many young Australians out of the Australian dream of homeownership. Today, in front of the whole country, they have chosen higher taxes on workers. They've chosen to lock more Australians out of the housing market. They've chosen a broken system.

This side of the House is standing with workers. We're standing with first home buyers. We're standing with the next generation, and that's why we will pass this bill unamended.

Milton Dick (Speaker) | Link to this | Hansard source

The question is that the amendments circulated by the honourable member for Hume be agreed to.

Milton Dick (Speaker) | Link to this | Hansard source

In accordance with the resolution agreed to earlier, the question now is that the amendment circulated by the member for Warringah be agreed to.

Member for Warringah's circulated amendment—

(1) Schedule 1, page 47 (before line 2), before item 82, insert:

81A Application of amendments — general

The amendments made by this Schedule apply only in relation to CGT assets that are real property.

Zali Steggall (Warringah, Independent) | Link to this | Hansard source

The government argues that this legislation is about making the tax system fairer between income earned from wages and income earned from passive investments. But that framing is too simplistic. A capital gain is often realised only after many years of risk, delayed reward, reinvestment, losses or uncertainty. If we want an economy that backs enterprise, innovation and productivity, we must recognise and reward responsible risk-taking.

I support the principle of reforming housing tax settings. Negative gearing and capital gains tax concessions have too often encouraged investment into established housing rather than new supply, and that has contributed to a market where too many young Australians are locked out. That is why I support the bulk of this legislation, schedules 2, 3 and 4. But schedule 1 requires amendment, and that is the amendment I have moved.

This bill goes much further than housing. It extends the CGT changes across shares, ETFs, managed funds, startups, small and larger business assets, employee equity trusts and family business succession. If the government's policy target is speculative investment in established housing, then the legislation should target that. It should not drag productive investment, business risk-taking and modest long-term savings into the same net.

The government has framed this package as reform for workers, first home buyers and future generations. But the concerns raised consistently with me in Warringah are that the CGT changes are not properly targeted. Young professionals, small-business owners, startup founders and families feel blindsided. Many are not wealthy investors living off passive income, as has been suggested by too many members of government. They are working Australians trying to build a financial buffer outside the property market.

The government may say that there will be amendments, carve-outs and extensions. But that leads us to the difficulties. We simply do not know where that is going to land. We are not privy to the negotiations around where the thresholds for business are going to be. For many young Australians who cannot get into housing shares, ETFs or employee equity are among the few remaining pathways to save, invest and build some financial security. Small businesses have raised similar concerns. Shares, startups and business equity are not the same as passive property investment. For entrepreneurs, early employees and local investors, capital gains can be the reward for taking risks, for accepting lower wages, for reinvesting profits or for building a business over many years.

Integrity in our trust system is also important, and income-splitting should be ended. But many family businesses and small operators also use trusts for legitimate reasons. The suggestion that businesses can simply restructure into companies is too simplistic again. Restructuring can mean legal costs, accounting costs, state taxes, transfer costs and additional administration. For small operators, that is not a minor inconvenience; it can be a major barrier.

There are also concerns around investment in clean energy and innovation. Australia needs more capital flowing into productive enterprise startups, renewable energy and growth businesses, not less. The object should be clear: reduce tax advantages that encourage speculation in established housing while protecting investment pathways that support productivity, entrepreneurship and long-term economic resilience.

The government has said there will be carve-outs, but the parliament has not seen what they are. I am not in a position to genuinely say to the people of Warringah that I think the carve-outs have met the right balance or are fair. We don't know which businesses will be protected, which asset classes will be exempt, how startups will be treated, or whether ordinary investors and employee equity arrangements will be caught.

And that's precisely why my amendment is appropriate. It restricts schedule 1 to real property now, where the government says the core problem lies. Once the government has done the modelling, consulted properly and settled the detail for other asset classes, the parliament can then have a proper debate about whether or not CGT changes should apply beyond property. It avoids capturing shares, ETFs, business equity, startup capital and other productive investments that are not the source of the housing affordability problem. It's a cleaner and more defensible approach.

I recognise that this has been a difficult debate and that it has taken courage from the government to bring a debate on housing investment in changes to CGT and negative gearing. I welcome it. I took that to the last election, but there is just so much uncertainty around the rest. I commend this amendment to the House.

Jim Chalmers (Rankin, Australian Labor Party, Treasurer) | Link to this | Hansard source

Thank you to the honourable member for Warringah. The first and most obvious point is that there is still a capital gains tax discount under this legislation, just one that better reflects the real gains that people make. The reforms in this bill are about reducing distortions in the market that have been encouraging people to invest in established houses rather than in other assets like units or shares. The current 50 per cent discount is arbitrary. It undercompensates some investors for inflation and overcompensates others.

Since the Howard government introduced the 50 per cent CGT discount at the turn of the century, there's been a big decoupling between housing and incomes, as the honourable member has acknowledged on other occasions. House prices have risen by more than 400 per cent since 1999, which is more than twice as fast as average full-time earnings. At the same time, the proportion of Australians who own shares has declined by almost 20 per cent.

Our reforms will mean that investors in all asset classes will be accurately compensated for inflation in line with the original intent of the CGT regime, and our changes mean some people may pay less tax. For example, on average, over the past 20 years, the indexation approach would have been broadly neutral or even a bit more generous for share investors. Only applying the CGT changes to property would replace one big distortion with another.

Thanks to Howard and Costello, we've had a tax system that has been misallocating investment across our economy for a quarter of a century now. That's why it's so important to apply these changes broadly—so that, in future, investment decisions are driven by economic outcomes rather than by what delivers the best tax outcome. It's part of a bill, as we said in response to the earlier amendments, which is all about cutting taxes for workers, making it easier for people to buy their first home and better aligning the tax treatment of labour and asset incomes. For those reasons, we'll be supporting the bill unamended.

Milton Dick (Speaker) | Link to this | Hansard source

The question is that the amendment moved by the honourable member for Warringah be agreed to.

Milton Dick (Speaker) | Link to this | Hansard source

In accordance with the resolution agreed to earlier, the question now is that amendments (1) to (4) circulated by the member for Wentworth be agreed to.

M ember for Wentworth's circulated amendments—

(1) Schedule 1, page 9 (after line 13), after item 7, insert:

7A At the end of Division 102

Add:

102-31 Income averaging

(1) The regulations may provide for or in relation to the proportional allocation, by individuals, of capital gains over the shorter of:

(a) the period for which the individual holds the relevant *CGT asset; and

(b) a period of 10 years.

(2) Regulations made for the purposes of subsection (1) may directly amend the text of this Act.

(2) Schedule 1, page 9 (before line 14), before item 8, insert:

7B After section 110-10

Insert:

110-11 Indexation of capital losses

(1) The regulations may provide for or in relation to indexing the *reduced cost base of a *CGT asset.

(2) Regulations made for the purposes of subsection (1) may directly amend the text of this Act.

(3) The Minister must take reasonable steps to ensure that regulations are in force for the purposes of subsection (1) within 6 months after the commencement of this section.

(3) Schedule 1, Part 2, page 40 (line 1) to page 43 (line 26), omit the Part.

(4) Schedule 1, Part 4, page 47 (after line 24), at the end of the Part, add:

84A Application of amendments — active assets

The amendments made by this Schedule do not apply in relation to a *CGT asset that is an *active asset.

Allegra Spender (Wentworth, Independent) | Link to this | Hansard source

I've been advocating for tax reform since I was first elected, and I welcome the government's guts to bring a serious proposal forward. I share many of the ambitions the Treasurer has identified in his budget, but I cannot support the bill's proposals in their current form. It's not because I don't support the intent. The government has correctly diagnosed significant problems in Australia's tax system. It's not because I don't support the broad direction of measures. I believe we do need to rebalance the tax system to reduce our reliance on wages and to pay for that by reducing concessions on assets alongside reducing spending as well. But I cannot support the bill in its current form for three reasons.

Firstly, not all of the revenue is being returned to the taxpayers. Some of it—$77 billion—has gone to the government, and I don't believe that's what the community wants. Secondly, I think there are real issues that are unresolved with the CGT model the government has chosen. Thirdly, this bill has been rushed through in an unacceptable way. You cannot say that this is the most important tax reform in a generation and then rush it through as it has been.

I have put amendments forward in relation to the CGT model because I think this is an area where there is an opportunity to get it right. I recognise that the government has an intellectually consistent approach, which is trying to make sure we only tax real gains, and that is what they're trying to do in this budget. I accept that they've done that well, but I don't think that's the main objective we should have in how we tax CGT. I think we also need to consider international competitiveness and incentives for risk taking that make it easy for people to plan and are simple enough for them to understand. That helps create a fair society. Those are the other considerations. I think the government should, instead of the work that they're doing, move to a reduced flat discount to, say, 35 or 40 per cent rather than an indexation approach, because I think that would narrow the gap between the taxation of labour and capital, produce a model comparable to other countries, raise similar amounts of revenue, not have issues with high-growth businesses or high-growth investments, and people would understand it.

Regardless, given that the government has moved forward with this CGT model, I think there are three amendments that deal with three of the known challenges to the model the government has put forward. Firstly, I've moved an amendment to remove active businesses from the new indexation CGT regime and remain under a flat discount regime until such a time as the issues around startups and small businesses are resolved. I recognise the government is serious about trying to resolve some of these issues, but these changes should not be made until those issues are resolved. Secondly, a second amendment would allow regulation to deal with the issue of capital gains being taxed on a real basis and losses being taxed on a nominal basis. I recognise there are integrity issues around this, and I recognise the government is sincere in trying to deal with them, but, honestly, this is a significant issue in this model of indexation of CGT. I think, if the government isn't willing to deal with these issues, it needs to recognise this model is not perfect either and that other models should be considered. Finally, I think that, instead of using a flat 30 per cent minimum real tax rate, the government should income average over the life of the asset or up to a maximum of 10 years. This is different to the Keating model, because the Keating model did allow for game playing in terms of some of the issues that have been rightfully identified. It would ensure that people pay tax at the marginal rate of the time that they held the asset, on their CGT. I think that is not an unreasonable mechanism. It would deal with many of the issues the government is trying to deal with in relation to the 30 per cent minimum real tax rate but would do it in a way that people would find easy to understand and that is simpler. Those are the three changes I have put forward in terms of this bill.

I recognise that none of these amendments are perfect, but I also don't think the bill is perfect. The government is not giving this bill enough scrutiny in the Senate and it is not giving enough consideration to the real issues with the bill, nor is it trying to make the bill better. I stand on the basis that I want this bill to be better. I want the government to make really substantial tax changes that make a real difference to the country over a long period of time. But, at this stage, I think there are issues with what the government has done, and they need to be resolved, and they should be resolved in the House before we're obliged to pass the legislation.

Jim Chalmers (Rankin, Australian Labor Party, Treasurer) | Link to this | Hansard source

Thank you to the member for putting her amendments. Of course, in the legislation before the House we are making the sorts of changes that the member has long called for to address a number of serious challenges in the system, which the member has long railed against. The idea that people don't have an opportunity to express their views doesn't stand up to scrutiny, particularly in relation to the member for Wentworth, who has been included over a long period of time in these sorts of deliberations.

On the specifics raised by the member, when it comes to income averaging, the reason that the Ralph review proposed removing averaging was for integrity reasons. When it comes to the indexation of losses, if we allowed that, that would mean that more people would sell and repurchase the same assets to offset other gains. That would disrupt markets and reduce the integrity of the system. On the minimum tax, we're making sure that the tax rate that people face will be more in line with the rate that they faced during their working life and with the tax rate paid by most workers. These reforms will make the system fairer and more efficient. They mean people will be more accurately compensated for inflation, and they reduce the incentive to defer selling assets until it's most advantageous in tax terms. For those reasons, we won't be supporting the amendments put forward by the member.

Milton Dick (Speaker) | Link to this | Hansard source

The question is that the amendments moved by the honourable member for Wentworth be agreed to.

Milton Dick (Speaker) | Link to this | Hansard source

In accordance with the resolution agreed to earlier, the question now is that amendments (1) and (2) as circulated by the honourable member for Kooyong be agreed to.

Member for Kooyong's circulated amendments—

(1) Clause 2, page 2 (table item 4), omit "Parts 3 and 4", substitute "Parts 2A, 3 and 4".

(2) Schedule 1, page 43 (after line 26), after Part 2, insert:

Part 2A — Relief for small businesses

Income Tax Assessment Act 1997

60A After section 152-12

Insert:

152-13 Indexation of thresholds

(1) The regulations may provide for or in relation to the annual indexation, in line with the consumer price index, of the following amounts:

(a) the amount of $2 million mentioned in paragraph 152-10(1AA)(b) (meaning of CGT small business entity);

(b) the amount of $6,000,000 mentioned in section 152-15 (maximum net asset value test).

(2) Regulations made for the purposes of subsection (1) may directly amend the text of this Act.

Monique Ryan (Kooyong, Independent) | Link to this | Hansard source

While we're making generational changes to Australia's capital gains tax system, we need to ensure that wholesale reforms don't come at the expense of clear modernisations. The thresholds for small businesses claiming capital gains tax exemptions is such an area of clear modernisation. The existing CGT small-business concession regime, the SBC regime, provides a sliding scale of concessional tax treatment to business owners when they sell their businesses. That regime is preserved by this budget. Under the current Income Tax Act 1997, in order to qualify for the regime, small businesses must have either an aggregated turnover of less than $2 million or combined net assets of less than $6 million.

Those thresholds have been unchanged for almost 20 years. The maximum net asset value test was first introduced in 1999, with the Howard government's discount. At that time, the threshold was $5 million for small businesses. That was lifted to $6 million in 2007. The $2 million annual turnover level has also been static since 2007. Were the government to adjust these thresholds to take into account consumer price index changes since 2007, today a small business would be one with a net asset value of about $10 million or an annual turnover of about $3.3 million.

There's a clear need to increase these thresholds to account for inflation and for a different business environment to the one we see today rather than 20 years ago. The existing tax thresholds no longer reflect the realities or the operating scale of many modern small businesses. I spoke to this when I moved my second reading amendment to this legislation last night. For CGT purposes, a small business is currently considered to have a turnover of up to $2 million and net assets of $6 million, while in other tax matters the thresholds are $10 million and $12 million, respectively. I previously suggested that that definition should be made uniform and consistent across tax matters. This suggestion is supported by the Council of Small Business Organisations of Australia, the Victorian Farmers Federation and the Australian Small Business and Family Enterprise Ombudsman.

Concessional tax regimes usually have indexed thresholds. That was acknowledged and respected most recently in the changes to taxation of superannuation. So, what I'm proposing here with these amendments in the consideration in detail of the legislation is that the net asset value test for this concessional tax regime be indexed in line with the consumer price index, as was suggested in Treasury's 2005 tax review, in order to modernise and optimise the treatment of small businesses under our capital gains tax regime.

Jim Chalmers (Rankin, Australian Labor Party, Treasurer) | Link to this | Hansard source

Thank you to the honourable member for these amendments. I also want to thank COSBOA, particularly Skye Cappuccio, for the engagement the government has been doing, the consultation we have been doing, with the small business sector. I acknowledge as well the wonderful work of the Minister for Small Business, who's been doing some of this engagement and consultation as well.

As the honourable member I think rightly acknowledged, or has on other occasions, there are four CGT concessions for small businesses, and we're keeping all of them. That means that eligible small-business owners pay reduced or no capital gains tax when the time comes to sell. The vast majority of small-business owners are eligible for these concessions on top of the indexation or the current discount. Our changes will mean that some people will actually pay less tax, depending on their circumstances, because the current arrangements undercompensate some investors for inflation while overcompensating others. Also, in the trusts changes that we have proposed there is generous rollover relief for small business.

In the budget more broadly, Mr Speaker, you can see that we are big supporters of small business. The budget was all about helping small businesses to invest and grow $3½ billion in tax cuts for business, particularly small business—whether it's making the instant asset write-off permanent, whether it's the two-year loss carryback, whether it's the loss refundability or whether it's expanding tax incentive for venture capital. There are a range of things we're doing, in addition to the 1½ million sole traders who will benefit from another tax cut from this government.

As the honourable member knows, we will do further consultation on the implementation details of parts of this legislation. That's entirely consistent with what we said in the budget papers and entirely consistent with how tax reform is undertaken by governments of both political persuasions. In the course of doing that consultation, in good faith, we look forward to talking more with the small-business community and its leaders.

Milton Dick (Speaker) | Link to this | Hansard source

The question is that the amendments moved by the honourable member for Kooyong be agreed to.

Milton Dick (Speaker) | Link to this | Hansard source

The question is that the bill be agreed to.