Media expectation about the May 12 federal budget is growing, with commentators straining to compete on hyperbolic prose.

“Jim, this is the most important budget this century. You’d better not bottle it”, warned the Sydney Morning Herald on March 11. “Fix tax and cut NDIS, CEOs tell Chalmers”, demanded the Australian Financial Review (AFR) on March 3 and the ABC News on February 23 ventured its own “Reducing inequality means taxing capital more — including inheritances”.

A large part of the excitement has been Labor lifting people’s expectations that it may take action to reduce the Capital Gains Tax (CGT) discount (currently 50% for assets held for at least 12 months).

Abolishing the 50% GGT discount is considered one of the necessary steps to reducing housing price growth. However, Labor is not expected to go that far.

The CGT was introduced by the Hawke Labor government in 1985. It applies to assets (except the family home, which is exempt) sold in any tax year and is levied at the marginal income tax rate of the tax payer, with the overall increase in value of an asset (sale price less purchase price and capital costs, such as renovations) taxed alongside other income.

Theoretically, the higher your taxable income from other sources, the more you pay in CGT.

The John Howard Coalition government introduced the 50% CGT discount in 1999. It means that when an asset is sold, that tax is only paid on 50% of the capital gain. In other words, if you realise a capital gain of $500,000 from the sale of an investment property, you only pay tax on $250,000 of that: the other $250,000 is yours, tax-free!

This benefits the wealthier (those on the highest marginal personal tax rate of 45%, payable by those with taxable incomes over $190,000) with the biggest capital gains, the most.

It is a great little money earner, at least for those who have enough to invest — not most of us.

The 50% CGT discount encourages the wealthy to buy housing as an asset. They compete in the housing market with those looking to buy a dwelling to live in, and then to sell the house in subsequent years to realise capital gain.

Theoretically, those who buy houses and units as an investment go on to rent them out. However, for many investors, tenants are simply too much of a risk to the investment and the dwelling is left vacant while accumulating value.

This is why the 2021 Australian Census recorded 1,043,776 unoccupied private dwellings, representing 9.6% of the total 10.85 million homes. Not all of those dwellings were investment properties left vacant, but many were.

The advantages for wealthy investors are magnified by negative gearing. This perk allows them to deduct the costs of rental properties (including insurance, maintenance and even interest on a mortgage) from their taxable income, potentially reducing the tax they pay overall.

And the best thing of all, the property doesn’t even need to be rented to access negative gearing: it merely needs to be “available for rent”. The value of the “asset” just keeps rising as house prices increase.

It’s not clear what, if anything, Labor will do to reduce the 50% CGT discount in the May budget.

“Maybe it will revisit its 2019 proposal to halve the discount to 25 per cent, or revert to the Hawke-era policy, when the discount was equivalent to however much the asset had inflated. Or maybe it will do nothing,” opined Tom Crowley for the ABC. Halving the 50% CGT discount is only likely to reduce housing prices by between 1-4%. This might slightly reduce pressure on homebuyers, but it won’t necessarily have any benefits for those renting.

Housing should be right, not an investment vehicle.

We need a massive increase in low-rent public housing to ensure that everyone who needs a house, or unit, has access.

Tax distortions, such as the 50% CGT discount and negative gearing, need to be rapidly phased out and private rents capped at no more than 20% of a renter’s income.

Bold action is needed to reduce the unaffordable cost of housing. None of the mainstream media commentators are expecting Labor’s budget to come close.

Elsewhere, sections of big capital are beginning to bear their teeth, providing free advice to federal Treasurer Jim Chalmers as he prepares the budget.

According to the March 3 AFR, BHP chairman Ross McEwan said that the Australian corporate tax rate (only 30%, down from 49% before 1988) is “not internationally competitive enough”.

Matt Comyn, the Commonwealth Bank of Australia CEO, stressed the need for spending cuts. “You’ve got to look at things like tapering off benefits ... particularly healthcare, social security, NDIS, we’ve got to be thinking about paring some of that back,” Comyn told the AFR. “Put simply, those who can pay more should.”

Presumably, he did not mean this being extended to those who have enough to invest in property and are able to negatively gear and enjoy capital gains?

The path to a fairer society lies elsewhere. “To help reduce inequality, government services have to be expanded, not cut back,” argued Alan Kohler on ABC News on February 23. “More broadly, capital and wealth are not taxed enough, and labour is taxed too much.”

According to The Australia Institute (TAI), we are already a very low taxing country (comparing taxation to GDP). The taxation rate is only 29%, while in France (hardly a bastion of socialism), the overall tax rate is 47.5%.

“Only eight [Organisation of Economic Cooperation and Developmen countries] have lower tax to GDP ratios than Australia, and these include relatively low-income countries like Türkiye and Mexico, as well as tax havens like Switzerland and Ireland,” TAI said.

Setting aside the self-interested bleating from the major corporation CEOs, Australia is already something of a tax haven for large business, particularly miners.

Suggestions from TAI to raise tax revenue, without hitting working people include:

• Eliminating fossil fuel subsidies, which cost $14.5 billion in 2023–2024.

• Increasing charges on the fossil gas industry—more than half of Australia’s gas exports pay no royalties and none pay Petroleum Resource Rent Tax.

• Imposing a tax on carbon emissions, which would raise an estimated $70 billion a year.

If Labor was to increase the rate of taxation only to the Organisation of Economic Cooperation and Development average, “the Commonwealth would have had an extra $140bn in revenue in 2023–24”.

Surely this would be enough to maintain and even expand social services and public housing investment? Take heed Chalmers: Better options are available. Tax the wealthy, tax mining and fossil fuels fairly and the money to provide social services and build a fairer society will become available.

[Graham Matthews is a member of Socialist Alliance.]

Long may Green Left serve the needs of ordinary folk, not the whims of the capitalist behemoths who blot our landscape and blight our lives. I look forward to many more years of Green Left!

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