A ‘terrible’ system for young people: Tax reform architect pleads for real reform

A doyen of the Labor Party and a key architect of the Hawke-Keating era of economic reform, Bill Kelty, has pleaded with the Albanese government to deliver “real” tax reform that rewards young Australians, saying older people like himself don’t need more help.

In an impassioned appearance before a Senate inquiry into the capital gains tax, Kelty, a former Reserve Bank board and secretary of the ACTU, said the increase in support among young people for “fringe” political elements was in part being driven by a tax system that was actively making their lives worse.

But there are clear signs that any changes to the CGT, even if part of broader tax reform, face stiff opposition, with the Housing Industry Association warning extra taxation of homes would lead to fewer being built for future generations.

The federal government is considering a change to the current 50 per cent concession on capital gains tax, introduced by the Howard government in 1999, as part of a broader overhaul of the tax system. Prime Minister Anthony Albanese and Treasurer Jim Chalmers have refused to be drawn on whether they will change the concession.

Kelty said just changing the CGT concession on its own would achieve nothing, labelling it as just another “ad hoc tax”, adding that the country needed to build more homes.

But if it formed part of a broader suite of tax changes that helped young Australians, then the reform would go some way to dealing with a tax and budget system that was overwhelmingly beneficial to older people.

“It’s a terrible tax system for young people. It’s not just a bad tax system, it’s a terrible tax system.”

“Reform is the issue. Changing the tax system for younger people, working people, people in poverty traps. And trying to create a vision and an expectation for a fair income tax system into the next generation in the next 20 or 30 years. They’re the key issues.”

Kelty, who supported the introduction of the CGT by then-treasurer Paul Keating in 1985 when it formed part of a deep cut in personal income tax rates, said a young person today faced marginal tax rates of up to 60 per cent for every dollar they earned above $80,000.

He said young people would be asked to pay far more tax for everything from the AUKUS submarine program to an “unfundable” NDIS. Older people had been handed so much by the tax system at the expense of the young.

High-income earners such as himself and federal politicians “need nothing” more out of the tax system as they had the financial ability to avoid the top marginal personal income tax rate of 47 per cent.

“I go out of my way to avoid it. I think most members of parliament [do]. It’s not there for payment, it’s there for avoidance,” he said.

Brendan Coates, the housing and economic security director with the Grattan Institute, said halving the current concession would raise $6.5 billion in additional revenue that the government should use to reform the tax system, pay down public debt or sink into more housing.

He said grandfathering existing property owners from any change would mean far less revenue would be raised, adding it would also result in “higher tax rates being paid for younger Australians for a longer period of time”.

ACTU president Michele O’Neil said the CGT concession unfairly benefited investors who could bid for a home knowing they enjoyed a sizeable tax benefit against first-time buyers who were reliant on their after-tax incomes.

The ACTU, like the Grattan Institute, supports reducing the concession to 25 per cent. But it also wants the concession, as well as the ability to negatively gear a property, restricted to a single investment property.

“Australian workers need a tax system that doesn’t reward wealth more than it does work,” he said.

The inquiry has two more sitting days, with supporters of the current tax system expected to give evidence.

HIA managing director Jocelyn Martin said housing was already one of the most overtaxed parts of the economy.

She said reducing the CGT concession would act like a further tax on investors, who would either lift the rental property market or push up rents to compensate for a change in the tax system.

“This is already reducing the ability of the market to deliver new homes because more and more the feasibility does not stack up for projects of all sizes, even when approvals are secured,” she said.