Peta Credlin: Liberals should have fought tooth and nail against unrealised capital gains tax
The Liberals should have fought tooth and nail against Labor’s coming tax on unrealised capital gains, writes Peta Credlin.
Opinion
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One of the great mysteries of the recent election was the absence of any sort of campaign against Labor’s coming tax on unrealised capital gains. The Liberals should have fought this tooth and nail, and the media should have reported on it more widely than it did.
Part of the problem though, and this is happening on tax issues like this, or energy too, much of this stuff is complex and there’s not enough journalists with the corporate memory to pull apart policy and explain it simply so voters can understand what’s really going on.
This tax, if it gets up, is unlike any other tax we have in Australia.
It breaks every tax rule we have and, if it becomes law, will start with the superannuation accounts of the wealthy but likely spread far and wide. This is because governments can’t help themselves once they break a rule and create a new precedent; the money rolls in, and they then look for where they can extend the tax and charge taxpayers more.
Right now, under our tax law, if you make a gain, you pay tax. The amount you pay is based on your marginal tax rate. And, depending on how long you have held the asset, there might be a discount applied or an exemption (eg the property is your principal place of residence).
A good example is an investment flat. Let’s say you bought a flat for $400,000 and you sell it five years later for $800,000. The capital gain in this case is the $400,000 profit and that’s what the taxman will tax at your marginal rate (less a 50% discount because you’ve owned the flat for more than 12 months).
What makes a tax on unrealised capital gains so radically different is that the tax is not levied on any profit you make, it is levied on profit you might make, and it works like this. Let’s say you have an asset that’s worth $1 million and, two years on, it has appreciated four per cent in value. Under Labor’s plan, you will be liable to pay tax on $40,000 even though you have not sold your asset and have not actually pocketed a cent. You are caught paying tax on a paper profit, not a real profit in the bank.
It’s no surprise then that businesspeople like retail magnate Gerry Harvey have said that taxing paper gains is “stupidity of the highest order”.
And yes, it is stupid, but Labor’s plan is also politically cunning. That’s because they say this tax will only hit the rich and that it will only hit superannuation accounts, not other assets like property.
No, not yet … but remember what I said, no government can help itself when it creates a new way to tax and this will just be the start.
Under Labor’s plan as it stands, their tax on unrealised capital gains is limited to super balances over $3 million, there is no discount (as there is for property) and the liability is immediate. So, here’s a recent example: Suppose your super fund holds $100,000 worth of Commonwealth Bank shares, which have appreciated 7.3 per cent over the past year; under Labor’s tax, you’d have to find 30 per cent of a $7300 capital gain, or $2190. And if you don’t have the ready cash, you’d have to sell assets to fund the liability.
Suppose your farm is owned by your super fund; if it increases in value, you’re up for tax that must be paid regardless of whether your farm has made any money. If that means you have to sell, too bad. Ditto if your super fund owns an investment property.
For Labor’s proposed legislation, Treasury estimated that taxing unrealised capital gains on super funds above $3 million would raise some $2.3 billion in year one. The Parliamentary Budget Office says that, by year 10, it would raise some $7 billion as inflation increases the value of more and more funds and the threshold is not indexed. And yet we got almost nothing on this from Liberals during the campaign.
One Liberal who did fight this unfair tax was Tim Wilson, who has just won back the seat of Goldstein from the Teals by not only pointing out the economic destruction it would cause but also the political futility of opposing such a tax by voting for the Teals – who would be tepid opponents of it, at best. Wilson said last week: “The failure to campaign against unrealised capital gains was not the greatest failure of the Coalition’s last election campaign; it was their greatest failure of the last three years.”
It’s that serious.
THUMBS UP
Sussan Ley – we will see how she goes, but at least the new Liberal leader was elected by her peers, unlike Labor’s Julia Gillard who was selected, and installed, by the factions.
THUMBS DOWN
Anthony Albanese – the PM can find time to fly to Rome for the new Pope’s inauguration and visit Catholic churches (with the media in tow) throughout the campaign, but apparently isn’t religious enough to pick up a bible to swear his oath of office?
Watch Peta on Credlin on Sky News, weeknights at 6pm
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