Barefoot Investor: unrealised gains tax and Warren Buffett’s warning of “hair curler” decades to come

Barefoot Investor has warned about market complacency and lambasted Treasurer Jim Chalmers’ proposed tax on unrealised capital gain, saying there is “no way he’ll get away with it”.

Less than 50 days ago, my inbox was chock-a-block with emails like this one:

“HELP! My share portfolio is getting smashed! On the news last night Alan Kohler said that Trump’s Liberation Day tariffs are much higher than the Smoot-Hawley tariffs that caused the GREAT DEPRESSION! Is it time to sell?”

At the time the share market was 16 per cent off its highs, and it suffered its biggest one day drop in five years.

What happened next?

Well, as I predicted, Trump folded like a cheap Aldi table, pausing the tariffs for 90 days. This caused the market to roar back as if nothing had happened.

And all those worried emails? They stopped coming.

Do you know what this reminds me of?

Actually, the Great Depression.

Black Monday, October 1929, is etched in world history. You’ve probably seen that iconic photo of the poor bloke trying to flog his luxury car for $100 on the streets of New York. The sign on the bonnet read: “Lost all on the stock market”.

Yet here’s what most people don’t know:

By April 1930, the stock market had bounced back … it was up 48 per cent from the October lows.

US President Herbert Hoover boldly declared to the world that “the worst is over”.

Phew!

Yet, as soon as those words left his lips, the market began puking.

Violently.

And it kept chundering for the next two long years. When it finally lifted its head from the toilet bowl, the share market had dropped a staggering 89 per cent from its 1929 peak.

Police on horseback move in to disperse panicked crowds on Wall Street, New York, October 29, 1929, the day of the stock market crash that led to the Great Depression. Stockmarket.

Now let me be very clear: I am not saying we are on the verge of the greatest crash in history. What I am saying is that humans have short memories. (Okay, and that US presidents cannot be trusted.)

Arguably the world’s shrewdest banker, JP Morgan chief Jamie Dimon, agrees. He’s worried about the Trump tariffs, even in their reduced form, arguing that the US hasn’t felt their effects yet. “The market came down 10 per cent, it’s back up 10 per cent. I think that’s an extraordinary amount of complacency”, says Dimon.

The fact is that Trump has three more years in the Oval Office, and what about this guy says, “I’m just going to go about things quietly, diligently and make no waves”?

My guess is that he’ll get even crazier as the days tick down.

Now, if you’re like me and you got through the Trump tariff tantrum without checking your portfolio, you’re probably good to go with whatever comes next. However, if you were one of those people sending me anxious emails 50 days ago – consider this your ‘do over’.

As Warren Buffett warned investors last week, while the long-term trend is up, “you will see a period in the next 20 years that will be a hair curler compared to anything you’ve seen before”.

Plan accordingly.

Tread Your Own Path!

“Plan accordingly”: Scott Pape. Picture: Jason Edwards

Jim Chalmers gets an A+ for his new super tax

Hi Scott,

With the newly re-elected government, there’s been lots of talk about the new tax on superannuation accounts over $3 million, specifically that it’s unindexed and that you pay it from unrealised capital gains. I think everyone would love your view as you speak from your heart and not your ego.

Barry

Hi Barry,

Jim Chalmers is a very smart politician.

I personally think his new tax should be hung up in the Lodge toilet so that future prime ministers can pay homage to it while they’re on the throne.

Here’s my take:

Both parties went to this election with a record amount of unfunded spending promises.

Now Jim Chalmers needs to find gushes of money.

So he’s chosen to tax super, for the same reason bank robbers hold up banks: because that’s where the money is. Trillions of dollars just sitting there, waiting to be taxed.

Yet his real genius is that he’s gone back in history and borrowed from the biggest bazooka of them all: Bracket creep.

Now the fact that 50 per cent of you reading this have no idea what these words even mean proves just how smart Jim is.

Bracket creep works like this: inflation pushes your income into a higher tax bracket, even if you’re not actually earning more in real terms. No new laws. No headlines. Just billions quietly hoovered up by the tax office.

And, by not indexing the $3 million cap, Jim’s effectively extended bracket creep into retirement. The upshot is that younger Aussies like me, who’ve been diligently adding to our super, may eventually get slugged.

Am I angry?

Not really. I’m a realist. The fact is that both parties have been hacking away at super for years. This is just the latest swing of the axe.

And what about his plan to tax unrealised capital gains?

(Unrealised capital gains tax means paying tax on something before you’ve sold it. It’s like the taxman sending you a bill just because your house went up in value, even though you haven’t sold it and haven’t made a dollar).

My view? It’s an unflushable turd.

There is absolutely no way he’ll get away with it. After all, I’ve got family members who own their farms in SMSFs. If the value of their farm goes up one year, do they sell off a paddock to pay tax? And in a drought when the value of the farm falls, does the ATO send them a refund?!

Better get the plunger, Jim.

Federal Treasurer Jim Chalmers. Picture: Martin Ollman

Thanks for NOTHING, Barefoot

Hey Scott,

I just read your column about Maura, the single mum who bought a home with a 2.5 per cent deposit and now can’t afford it. Maura, listen to Scott – and you might end up like me: with ‘nothing’ (and grateful for it). In 2022, I owned my first home. Then a work injury shattered my income. I was living on $200 a fortnight with rising medical bills and no end in sight. Desperate, I finally called a financial counsellor. I walked in ashamed, terrified – and walked out with support, a plan, and a huge sense of relief. Selling my home hurt. But two years on, I’d do it again. Today, I’ve got ‘nothing’, except six figures in my bank account and no crushing debt. That freedom is worth everything to me. My only regret? Not picking up the phone sooner. So, thanks for ‘nothing’, Scott.

Amanda

Hi Amanda,

You’ve just written the anti-Instagram story: no hustle, no property portfolio, no pretending.

You were on your knees. Broke. Living on $200 a fortnight and too scared to open the mail. Yet you managed to do the hardest thing of all: you picked up the phone and asked for help.

That took guts.

Selling your home would’ve felt like a total failure. Yet it turned out to be the thing that set you free.

Once the weight of the debt was lifted off your shoulders, you could finally breathe. Now you have a bank balance that proves you’re in control.

So yeah, thanks for ‘nothing’, Amanda. Because your story will help more people than a hundred finance influencers ever could. If you’re reading this and feel like you’re drowning, call 1800 007 007. It’s free. It’s confidential. And it just might change everything.

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as Barefoot Investor: unrealised gains tax and Warren Buffett’s warning of “hair curler” decades to come