Treasurer Jim Chalmers' sweeping powers to alter his contentious tax changes after they have been legislated will increase business costs and discourage investment, leading fund manager Geoff Wilson has warned.
Mr Chalmers will be allowed to adjust key elements of his capital gains tax and negative gearing reforms after they pass parliament, if legislated. Greens and Coalition MPs have warned these 'King Henry VIII powers' undermine parliamentary scrutiny and could be abused.
Mr Wilson's fund warned that investors could not properly anticipate how the tax changes will impact them as a Treasurer could shift them after being legislated. 'Uncertainty of this kind increases perceived risk, raises required rates of return and ultimately increases the cost of capital for Australian businesses,' Wilson Asset Management wrote in a submission to the Senate inquiry.
The fund stressed that certainty was essential for Australian businesses before they committed huge amounts of capital over a long timeframe. 'That mismatch between investment horizons and policy certainty will inevitably discourage investment,' WAM's submission said.
Mr Chalmers will be able to determine which individuals will be affected by both the CGT and negative gearing changes. The legislation gives the Treasurer powers to determine which assets could be exempt from capital gains tax concessions. Mr Chalmers has rejected claims the legislation gives him excessive authority. He described criticism of the powers as overblown and denied suggestions that he was effectively giving himself the ability to decide which assets qualify for CGT concessions. 'Of course not. This is another beat-up, unfortunately,' he told Nine's Today show. 'It's not unusual in tax legislation for the definitions to be settled in what's called legislative instruments.'
Labor's package proposes replacing the existing 50 per cent capital gains tax discount with an inflation-indexed scheme, introducing a minimum 30 per cent CGT rate. The changes will also restrict negative gearing to new builds for investors. Combined with planned trust reforms that are yet to be introduced, the measures are expected to generate more than $80 billion in additional revenue.
The legislation contains nine ministerial determinations, according to CPA Australia. They include determining what qualifies as a new dwelling under the government's negative gearing changes, as well as setting rules around housing-related definitions that could affect how the reforms operate in practice. The legislation also gives scope for ministerial determinations on the application of the apportionment method used for capital gains tax calculations and on whether additional classes of assets can continue to access the 50 per cent CGT discount. Other powers cover exemptions from Labor's proposed minimum 30 per cent capital gains tax rate for certain recipients of income support payments.
The tax powers came into the spotlight during last week's Senate Estimates when Greens economics spokesperson Nick McKim raised some pointed questions with Finance Minister Katy Gallagher. 'If you are serious about your reforms, why have you created a power in this legislation to allow your reforms to be walked back in the future,' Mr McKim asked Ms Gallagher. She replied: 'That is not what it's about – walking back. It is not unusual in complex legislation to have ministerial powers that usually have disallowance attached to them to deal with particular situations that might arise.' Ms Gallagher said the powers were 'useful' particularly when there was oversight by parliament.
Mr McKim repeated his question about the extensive powers for the Treasurer. 'If you are serious about your reforms, why have you created powers that would allow a future Treasurer – from whatever political party they may belong to – to undermine the reforms? Why have you done that if you are serious about generational reform to the housing market.' Ms Gallagher stressed that she had 'answered the question'. 'The idea that we're not serious when we have a published budget that's raised quite a bit of interest – in case you haven't noticed Senator McKim over the last three weeks – the idea that we're not serious about this is … I can't take it seriously,' she said.
