Limiting capital gains tax changes to new investments would ‘severely delay’ budget reforms, Deloitte says

Only applying changes to the CGT discount and negative gearing rules to new investments would “severely delay” desperately needed reforms required to repair a “structurally flawed” budget and boost the economy, Deloitte says. The consulting firm estimated that a policy which cut the 50% capital gains tax discount to 33% and abolished negative gearing would only generate $500m over the first four years of operation if existing investments were not included – an approach known as “grandfathering”. Phasing in the new tax settings for all existing investors over three years, in contrast, would boost the budget by a substantially larger $18.8bn over the first four years - money which Stephen Smith, a lead partner at Deloitte Access Economics, said could be used to pay for income tax cuts for Australian workers. The additional revenue could, for example, fund a 1 percentage point cut to the lowest marginal tax rate that would give an additional $500 back to a worker earning $45,000 a year. Alternatively, the nearly $19bn generated from scaling back investor tax breaks could fund more “wholesale” and productivity-enhancing income tax reform. One such reform would be a near doubling in the tax-free threshold to $35,000, then a flat 33% tax rate on income up to $300,000 followed by a higher 40% rate for income over that. …