Treasurer Jim Chalmers is under the pump from the Australian business sector and one independent MP, who have urged the government to scrap its CGT overhaul.
Independent MP Allegra Spender and the chief executive of the Australian Industry Group have spoken out against the Labor government’s proposed CGT reform.
They join a growing chorus of groups pressing Labor to adopt a simpler alternative for business assets.
Ms Spender has called for reform on the matter in an open letter to Prime Minister Anthony Albanese.
While acknowledging the government’s reasoning for the CGT reform, Ms Spender said ultimately the changes will be “too narrow and too complex to be effective”.
Ms Spender called for the preservation of incentives for Australian businesses to take risks and innovate.
“We are concerned that indexation will make Australia internationally uncompetitive for low-capital, high-growth businesses, but also comparatively reduce risk-taking in active share portfolios because of the asymmetric treatment of losses and gains,” she said.
Ms Spender added the current tax proposal risks undermining Australia’s attractiveness as a place to start and grow businesses.
“We believe a more suitable compromise would be to retain a flat discount at a reduced rate of 40 per cent applied to all ‘active assets’, covering a broader range of businesses, shares and options,” she said.
Supporters say that would give founders, staff and investors more certainty, while still meeting the government’s broader aim of rebalancing the tax system.
The MP’s sentiments have been supported by Ai Group chief executive Innes Willox, who wrote a personal letter to Mr Chalmers this week, the Australian Financial Review reported.
The letter warned the planned changes could create “unintended consequences” and “perverse incentives” against risk-taking, echoing Ms Spender’s sentiments.
In June, Chalmers came under scrutiny for handing himself broad powers on tax reform.
Chalmers rejected the criticism, stating the powers were limited to determining legislative instruments and remained subject to parliamentary review.
In the May budget, the Labor government scrapped the existing 50 per cent CGT discount implemented by the Howard government.
Howard’s CGT policy applied to assets that had been held onto for longer than 12 months.
However, from July next year, the government plans to scrap the 50 per cent CGT discount and replace it with an inflation indexation model that taxes only “real” gains.
The government has proposed an Innovative Business CGT Concession to shield some start-ups but critics say it’s too complicated and could stifle risk and innovation.