Morningstar market strategist Lochlan Halloway has written what I think is one of the most thoughtful reactions I’ve seen to this week’s federal budget.
While acknowledging that Jim Chalmers’s latest budget “was painful for anyone who holds growth assets, particularly investment property and shares”, and arguing that they probably should have been taken to an election, he also warns that the future alternative to higher taxes now could be far worse for investors.
“Proponents argue the existing concessions tilt the tax system toward capital at the expense of labour income, which cannot be structured through trusts or corporate vehicles, and does not compound across generations. Critics counter that negative gearing supports rental supply, and that higher taxes on investment will reduce the productive capital formation the economy needs,” he notes.
“Both arguments have merit. What is harder to dispute is the structural backdrop that has thrust this debate upon us. Housing is unaffordable, particularly for younger Australians. Trust in institutions is falling. Political volatility is rising. These conditions historically create pressure for redistribution, and the form that redistribution takes matters enormously for investors.
“Macquarie’s Viktor Shvets argues in his 2024 book The Twilight Before the Storm that our era shares features with the 1930s: extreme financialisation, high inequality, and declining institutional trust. The historical record suggests that when these pressures become acute, outcomes range from managed reform to severe political rupture. Which path a society takes depends heavily on whether credible institutional responses arrive before the pressure becomes unmanageable.
“Whether Tuesday’s budget was the right response is up for debate. But investors should take the underlying pressure seriously regardless of where they land on the policy. Rising inequality and populism are real risks to the property rights, institutional stability, and social cohesion that long-term investing depends on.”