Are this budget’s tax changes really an ‘assault on aspiration’?

With this year’s budget^[1], the Albanese government has delivered a suite of bold tax reforms aimed at improving Australia’s “intergenerational equity^[2]” – particularly young people’s access to home ownership.

The reception, however, has been mixed. Some groups have welcomed^[3] the government’s proposed changes to wind back generous concessions on capital gains income and negative gearing^[4]. In stark contrast, Opposition Leader Angus Taylor used his budget reply speech^[5] to call it an “assault on aspiration”, representing broken promises.

Proposed changes to the way capital gains are taxed have been a particular point of concern. The removal of the 50% capital gains tax discount has not been limited to investment properties – it will apply to other assets^[6], such as shares, too.

That’s led some to warn the changes could actually backfire^[7] for young people, particularly those investing in shares to save for a housing deposit or build their wealth.

Separately, startup founders and investors have warned^[8] taxing capital gains more will make it less attractive to start or invest in a business in Australia, and harder to attract and retain talent by offering them shares.

So, are this budget’s tax changes really an “assault on aspiration”? The answer is nuanced. And although the government has announced these changes, the legislation hasn’t passed through parliament yet, and further changes could be made.

Building wealth

From July 1 2027, the federal government will abolish^[9] the current 50% tax discount that applies to capital gains on assets owned for at least 12 months.

Right now, if you sell such an asset, you only pay tax on 50% of the gain. This will be replaced with an indexation-based system that will only tax real capital gains (that is, after inflation).

On the same date, the government will also introduce a 30% minimum tax^[10] on income from capital gains (with exemptions^[11] for those receiving government income support).

Under the current settings, these are only taxed at an individual’s marginal income tax rate^[12] – which for some people, could be lower (0% on income from $0 to A$18,200, and 16% on income from $18,201 to $45,000).

Critics have argued^[13] the changes will hurt young people – especially those working part-time and taxed at those lower marginal tax rates – trying to build their wealth through shares. They’ll now face a 30% minimum tax on any gains.

Some caveats

But there’s important nuance here. Such a young person investing in shares will only be taxed on these capital gains when they sell the shares. If they sell them years down the line, their income may put them in a higher bracket anyway.

Under the new system, how much they pay will depend considerably on inflation over the period they’ve held the shares. If inflation has been high, they will pay correspondingly less tax in dollar terms (because they will have made less of a real gain) and vice versa.

For that reason, the average tax rate on capital gains is expected to increase (compared to the 50% discount). On Monday, Treasurer Jim Chalmers released government modelling suggesting this may only be a very modest change, from 19.3% to 21.4%^[14]. That’s because various other capital gains tax concessions (such as for small businesses) will remain in place.

For young people, superannuation is one avenue that still offers tax-advantaged ways to build wealth long-term. It can even help them invest to save for a housing deposit, through the first home super saver scheme^[15].