Treasury figures reveal $18 billion capital gains windfall for Australia’s richest 10 per cent

The latest tax expenditure figures released on Friday by the Treasury department show this financial year the richest 10 percent of Australians will receive $18bn worth of tax breaks from the capital gains tax discount – nearly 5 times more than everyone else.  

In 1999, John Howard and Peter Costello changed the way capital gains were taxed. A capital gain is the profit someone makes on an investment – for example shares, or most importantly property. 

Howard and Costello decided to give half of the capital gain from investments and speculation tax free if the asset was held for more than a year.  

So, for example if someone bought an investment property for $900,000 in 2019 and sold if 3 years later for $1,300,000 (which happened to the median price of a house in Sydney at those times) they would have made a $400,000 profit.  

But thanks to Howard and Costello (and every government since then that has decided to keep the discount in place) they get $200,000 of that profit tax free (the other half gets added to their taxable income and they pay tax on it in the same way they would if it was any other type of income like wages). 

As you would expect the people who get the most benefit from the 50% tax free handout are the very wealthiest. But the scale of the benefit is truly jaw dropping.  

In this current financial year, the Treasury estimates that the total benefit of this tax break cost the government $21.8bn in foregone revenue. Of that, 83% goes to the richest 10% of households in Australia – or just over $18bn: 

If just the amount going the top 10% were listed as an expense in the Federal Government’s budget, it would be the 12th biggest program – just behind the $18.1bn spent on support for families.

The richest 10% of households get more money from the capital gains tax discount than the government spends on Jobseeker, the child-care subsidy, government schools or higher education. They get nearly $4.5bn more than it would cost the government to include dental in Medicare:

So great is the amount the richest 10% receive from the capital gains tax discount, that it is more than the combined amount the government spends on housing, student assistance, vocational education, ABC & SBS, the science and innovation fund, Aboriginal and Torres Strait Islander health, and public dental services.

Not only does the capital gains tax discount increase inequality by delivering such a massive tax break to the richest, it also greatly distorts the housing market.

The CGT discount makes it much easier for housing investors to speculate. Because they know they will get half of the profits tax free, it makes it much easier to bet that they will make money from buying a property, and also negative gear the property while they wait for prices to go up.

It was this change that set fire to house prices and massively reduced housing affordability.

Since 1999 the CGT discount has delivered billions of tax breaks to the richest, while making it harder for Australia to buy a home.

Scrapping it would not only even the playing field for first home buyers and investors, but the tax raised could be used to more than fund putting dental into Medicare – something that would be political popular, and one of the most significant health reforms of the past 40 years.