Almost a month has passed since Budget night, and criticism continues to mount. Hardly a day goes by without someone uncovering another quirk buried in the Budget papers. Worse still, much of the proposed legislation is so vaguely drafted that even tax experts say they are waiting for further details before giving advice.
I was originally going to start with the biblical phrase, "Forgive them, Lord, for they know not what they do." But the more I dig into the detail, the less appropriate that seems.
The quote that now comes to mind is Sir Walter Scott's warning: "Oh, what a tangled web we weave, when first we practise to deceive." The government's determination to rush the legislation through Parliament before proper scrutiny only adds to the concern.
Labor keeps presenting these measures as a solution to "intergenerational inequality" and a way to make housing more affordable for first-home buyers. That's nonsense. There are only three ways to improve affordability: cut personal income tax, reduce interest rates or allow house prices to fall.
The first two are off the table. While softer prices may help buyers, they spell trouble for young people who purchased with deposits as low as 5 per cent.
The attack on negative gearing has already driven investors from the market, leaving first-home buyers competing for a shrinking pool of properties.
The predictable result is tighter rental markets and higher rents. And what possible connection is there between housing affordability and higher taxes on small business, testamentary trusts and capital gains?
It looks less like housing policy than a revenue grab.
The broader pattern is troubling. Labor took four key tax targets to the 2019 election - the capital gains tax discount, negative gearing, family trusts and franking credits - and voters overwhelmingly rejected them. This time the measures are being introduced early in the parliamentary term, long before voters can pass judgment.
Consider franking credits. Accountants tell me many business owners are already restructuring, with family companies increasingly preferred over family trusts. If that trend continues, will franking credits become the next target? Dismissing the possibility because "they would never do that" is hardly persuasive.
Treasurer Chalmers claims the extra revenue will fund an automatic $1,000 tax deduction for ordinary Australians. Get real, Jim. A $1,000 deduction is worth only about $300 to a worker on average earnings. Together with the $250 Working Australians Tax Offset, the benefit is only about $11 a week to the average worker, while the major tax measures are expected to raise about $77 billion. If correct, that would be the biggest tax grab in Australian history. Yet there is barely a mention of one of the most disadvantaged groups in society: single pensioners who rent and are heavily penalised if they supplement their income through part-time work.
Then there are the misleading comparisons. The government claims replacing the capital gains tax discount with indexation simply returns us to the Paul Keating model introduced in 1985. What it omits is averaging, which prevented one-off gains from pushing taxpayers into higher tax brackets. A taxpayer earning $125,000 with a $50,000 capital gain would pay 30 per cent under Keating's averaging rules but 37 per cent under the proposed model. That's not a return to the Keating model. It's a selective version that keeps the revenue-raising features and drops the taxpayer protections.
The government has even invented a new term: the "minimum tax gap". To work it out, the legislation requires a seven-step process to calculate your minimum tax capital gain, followed by another seven-step process to calculate your minimum tax gap. That's 14 separate steps before you even know how much tax you owe. As far as shares are concerned, the complications are mind-boggling.
Case study: Ted and Mavis, both aged 75, have $700,000 in super and shares Ted bought five years ago for $60,000. They receive a part Age Pension. Ted dies on 30 June 2027, leaving everything to Mavis. She loses her Age Pension because her assets exceed the threshold. At his death the shares are worth $100,000. Two years later she sells them for $120,000 to help fund travel and home renovations.
Under the old CGT rules, the $60,000 gain would have been reduced to $30,000 after the 50 per cent discount, resulting in no tax. Under the proposed rules, Mavis can elect a market value cost base of $100,000 at 1 July 2027. Assuming 5 per cent indexation, the cost base becomes $105,000. Selling for $120,000 produces a post-2027 gain of $15,000, attracting a minimum tax of $4,500 unless she qualifies for at least part of the Age Pension. If she receives even one dollar of pension, ATO could eliminate the tax entirely. That is a tax difference of $4,500 on a gain of just $15,000. How is that a fairer tax system?
It's difficult to avoid the conclusion that these measures were rushed, poorly thought through and drafted without proper consideration of their real-world consequences. As more details emerge, the list of anomalies grows. The question is whether the government is prepared to listen before the damage becomes permanent.