Tax Warning: Former Treasury Official Flags "60% Effective Rate" for Investors Under Proposed CGT Changes
A former senior tax official at the Treasury has issued a stark warning about the Albanese government’s proposed alterations to the capital gains tax (CGT) discount, suggesting share investors could face effective tax rates not seen in Australia since the 1980s.
Geoff Francis, a former Treasury tax official, raised significant concerns regarding the technical tax policy changes. He cautioned that the reforms could result in share investors facing effective tax rates of up to 60% when the interaction of various tax provisions is considered.
"Australia has not had an income tax rate that high since the 1980s."
The warning highlights a potential fiscal outcome that many in the investment community may find startling. For context, top marginal income tax rates in Australia were drastically reduced during the Hawke and Keating governments, making a return to such levels—even implicitly—a major point of contention.
An "Uninvestible" Environment?
The impact of these proposed changes has drawn sharp criticism from the investment sector. Derek Francis, identified as Geoff Francis's brother and an active investor, offered a blunt assessment of the market's future.
According to Derek Francis, shares are now effectively 'uninvestible' outside of superannuation under the proposed regime. This sentiment underscores a growing belief that the changes could fundamentally alter the landscape for retail and high-net-worth investors, potentially redirecting capital away from the broader share market.
Background: The CGT Discount in Question
The core of the debate centers on the Albanese government’s planned alterations to the capital gains tax discount. This is a technical but highly consequential tax policy that primarily affects investors in assets such as shares and property.
By changing the way the discount is applied or the rate at which it is calculated, the government risks creating a scenario where the marginal tax burden on investment income becomes significantly higher than the headline tax rates for salary and wages. The warnings from Geoff and Derek Francis suggest these technical tweaks could have severe and unintended consequences for market liquidity and investor confidence.