After reading this column, my editor, Wally, said:
“I’m confident this piece will generate the greatest amount of hate mail you’ve ever received.”
Let’s see if he’s right …
Do you know what the easiest thing I could have done this week was?
Exactly what every other financial commentator has done:
Lean into the outrage about the budget.
Instead, I’m going the other way. And I’m probably going to piss a lot of you off. Starting with Brian, who wrote to me after what I can only imagine was a solid session on the La-Z-Boy with a few reds:
Scott,
I am just so sick of these incompetent bastards. This budget is just another giant Labor tax grab. People in the top 10% of income earners pay more than half the taxes. Half! Now Albo wants to be a 47% silent partner in every small business in the country. Why would anyone bother? Young people saving for a deposit in index funds? Taxed. Family trusts helping kids through university? Taxed. Small business owners who’ve spent decades building something? Taxed at rates that would make your eyes water.
New Zealand has no capital gains tax. Dubai has no capital gains tax. And our smartest young people are figuring that out real fast. You’ve got the platform, Scott. Let your followers know what’s really going on.
Brian
Bingo-bango, Brian!
You’ve sure got a lot of very big feelings.
Thankfully, I’m a father of four. I deal with big feelings before breakfast.
Let’s get into it.
Brian and I have a lot in common. I’m a high income earner and I pay a lot of tax. I come from a family of small business owners and I run one myself. And I bristle when I see politicians crowing about their economic credentials. The fact is, this is the highest-taxing Australian government since World War Two, and that spending is putting pressure on interest rates that every mortgage holder feels.
Yet what really worries me isn’t the tax take. It’s that our outrage meter seems to be stuck at eleven.
It feels like we’re drifting towards America, where everything is viewed through a political lens and everyone is absolutely furious all the time.
And if we get angry enough we might just end up with Pauline as our PM, and the greatest economic insight she’s ever had was asking “Why can’t we just print more money?”
(Seriously, look it up.)
Anyway, let’s deal with Brian’s three beefs.
Think of the poor kids!
Plenty of young people have written to me in a panic about the changes to capital gains tax. Many were planning to use their share portfolio as a house deposit.
My view?
The CGT change is not their biggest problem.
Let’s say a young investor puts $50k into an Aussie index fund. Based on historical returns, it grows to around $72k over five years. Under the new CGT rules, they’d pay roughly $900 more tax when they sell. And depending on future returns and inflation, they might actually come out ahead.
The real problem is the share market dropping 40% and their $72,000 deposit becoming $43,000. Then it takes a decade to recover, while rents keep rising and they’re still at their parents’ place eating their Cheerios. That’s why my rule has never changed: do not save for a house deposit in the share market.
Introducing my new business partner!
Brian’s “47% silent partner” line was funny on social media the first 700 times. Now it’s just annoying. And it’s wrong. The small business CGT concession regime allows the vast majority of small business owners to halve or completely eliminate the capital gains tax they pay when they sell. It’s been there for years (though the thresholds need to be increased).
The real risk is using the tax rate as a reason not to back yourself. Building something from nothing, employing people, serving your community. It’s a hard life. It’s also one of the most rewarding things a person can do. Don’t let a meme talk you out of it.
The family trust
Okay, so this one stings. You see, my kids have been nothing but a spectacular financial loss since the day they arrived. I was counting down the days until they turned eighteen, when I could finally start distributing trust income to them and claw something back. And then the bloody government snapped that door shut just as my eldest was getting close to useful.
Yet it actually makes sense. The system lets wealthy families with good accountants pay less tax than nurses and tradies. That doesn’t pass the pub test.
Finally, if you spend enough time on social media (or listen to Brian) you may start to think that Australia is the highest-taxed nation on earth. Actually, we’re in the middle of the pack, but with a standard of living in the top handful of countries on the planet. The cops don’t shake us down (mostly). Our kids go to decent public schools (mostly). And if one of them gets sick, you don’t need a GoFundMe page.
And what about the top 10% of taxpayers that Brian is so upset for?
We’ll be fine.
After all, we’re the wealthiest people in the country.
Living in one of the wealthiest countries in the world.
At the richest time in human history.
Life is good, Brian, especially when you log off.
Tread Your Own Path!