Investors living in the wealthy electorate of Wentworth, in Sydney’s eastern suburbs, claimed around $1.8 billion of the 50% capital gains tax discount, according to new research. It reveals how a handful of wealthy enclaves in Australia’s two largest cities account for a fifth of the annual tax break benefit.
The Australian Council of Social Services is pushing for the CGT discount to be halved and has used analysis of 2022-23 Australian Taxation Office data to highlight how benefits “flow overwhelmingly to a small number of high-income inner-city electorates in the eastern states”.
In Wentworth, where the average taxable income is $162,561, the average annual capital gains tax exemption is $13,450 per person, making up 7.5% of the $20 billion in total profits.
By contrast, in Blaxland, in Sydney’s west, where the typical income is $53,542, people received an average CGT grant of just $333, the report said.
Acoss chief executive Cassandra Goldie said: “It is clear that this tax break funnels billions into the wealthiest parts of our country at the expense of those who do it hard.”
The top five electorates are all in Sydney or Melbourne and capture 22% of all CGT discount spending nationally, compared to just 1.6% for the bottom 10 electorates.
“This is money that could be invested in social housing, essential services, income support and in the communities that need the most support. Instead, it is being used to increase inequality,” Goldie said.
There is widespread speculation that Treasurer Jim Chalmers will unveil a reform agenda in the May budget that will limit tax breaks for investors in the name of intergenerational fairness.
Economists said there was reason to believe the CGT discount was too generous and there was a case for a reform that would tax capital more and workers less.
Despite representing voters in some of Australia’s wealthiest suburbs, Wentworth MP Allegra Spender this week unveiled a tax white paper that advocated reducing the CGT discount to 30% as part of a broader reform package that would allow for significant cuts to income taxes.
Spender, speaking at the National Press Club, said she was prepared to have these “difficult conversations” with her constituents about the need for reform and that all Australians have a “sense of justice in our bones”.
“When you show them that the tax system artificially favors leveraged property investment over first-home buyers, they don’t shrug their shoulders. Australians understand what fairness means,” he said.
Ben Phillips, associate professor at the Center for Social Policy Research, said: “It is clear that capital gains on investments are mainly made by people with substantial income and wealth, and it is not surprising that people with these types of investments cluster in well-off areas such as Wentworth.”
Phillips said the 50% discount was largely implemented to ensure that investors do not have to pay taxes on the inflation component of their profits.
“This appears to be a reasonable principle, but since its creation in 1999 it has been clearly concessional beyond the inflation component, with house prices and other investment gains being more than double the inflation rate,” he said.
“Reducing the capital gains discount to something lower, but not zero, or returning to the old system would provide the government with several billion per year in additional revenue and would be a fairer way to tax capital gains.”
Director of the ANU Tax and Transfer Policy Institute, Bob Breunig, also argued that the CGT discount needed reform, but that the case went beyond simply “sticking it to the rich”.
“It may seem attractive, but it’s also not fair. The best solution is to index the discount to the actual inflation rate and then the generosity rises and falls over time.”
