Hi,
There are a number of interesting aspects to this debate.
It could be argued that the present taxation regime may well encourage investment.
But what sort of investment?
I believe that the core problem is the capital gains regime.
It advantages investment in speculation on asset inflation vs productive activity.
Why should I invest in a productive activity which might return 8% , when investment in an activity which produces nothing, but appreciates in value by 8% , produces a better after tax outcome.
At the highest tax rate , 4% in the 1st, 6% with the latter.
The negative gearing changes would be unnecessary if the cgt taxed "real" profits.
Labor's changes to cgt[reducing the discount to 25%] will partially reduce the bias against productive investment, but how they plucked that number out of the air, I have no idea.
Looking at the investments above, the numbers become 4% and 5%.
Much better would have been a return to the previous regime of taxing after inflation profits, at the marginal rate.
Blanket grandfathering also isn't necessary,in fact I think it is undesirable, as it produces its own set of anomalies. You could just grandfather assets by having a valuation done on a set date ,which would act as a base for the new system.
ie I own a share which is worth $1000 at the cutoff date, cost was $600. I sell them 2 years later for $1100, after a cpi rise of 4%.
Assuming a marginal rate of 50c , tax on a sale of these shares at $1100 dollars would be 50% of the $400, and $30[50c in the dollar on the $60 dollars of after inflation gains].
Too complex? It is not as hard as it looks, and eventually these sorts of calculations would be unnecessary as the grandfathering washes thru the system, in much the same way as pre 1985 assets have.
For those that feel that valuations , as described, are likely to be too complex and expensive, are in error.
Those with smsf's containing real estate already have to provide yearly valuations, an irritation ,but no big deal.
In summary, I like the idea that if you make a "real dollar", you pay tax on it.
And if you do that, then quarantining losses from interest in a particular investment activity become superfluous.
cheers
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