AAA<\/p>\n
A model is only as good as the assumptions that underpin it. And when those assumptions are landmines, what happens when the model is tested by reality is going to be messy.<\/p>\n
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Economist Derek Francis thinks Australia will have the highest CGT in the world. <\/p>\n
At 4.30pm on budget night \u2013 which is more than a month ago now, but still making headlines \u2013 the government released the number 75,000. At 4.30am two days later, an economist and share trader woke up with a \u201cEureka\u201d moment.<\/p>\n
This is not a whodunit. I can tell you up front: the modelling is the culprit in both of those stories.<\/p>\n
The 75,000 number was released to the media with an embargo which lifted after Australia\u2019s leading public economists had been shut into the budget lock-up. That means they\u2019d had their connection to the wider world taken from them, giving the figure the best chance of making its way in the media and social feeds for 3\u00bd hours without unwelcome scrutiny. It was so obviously a political tactic that I was immediately suspicious.<\/p>\n
The media drop referred to an announcement that the budget would \u201csupport\u201d an additional 75,000 first home buyers<\/a> over 10 years. The number got the headline<\/a> it was designed to generate. Rent, which might go up \u201cless than $2 per week\u201d according to the budget papers, wasn\u2019t mentioned.<\/p>\n Related Article The working behind those numbers is opaque. The relevant ministers\u2019 offices and Treasury rebuffed my request for the assumptions on the basis that it\u2019s \u201cnot standard practice\u201d to release Treasury modelling. Any shareholder can demand a company reveal how it arrives at its valuations, but as citizens we have no access to the figuring which underpins our national accounts.<\/p>\n While I was focusing on housing, others were discovering mines planted across the breadth of the budget. Private hedge fund manager and former NSW Parliamentary Budget Office chief economist Derek Francis woke up before dawn on the Thursday after it was handed down with the idea that the capital gains tax changes might work in his favour. Testing his theory, he came to a realisation: by taxing the gains on shares but not recognising offsets for losses in a portfolio, the CGT changes hike the tax rate on a diversified share holding significantly.<\/p>\n \u201cWhat the Treasury model assumes,\u201d he explains, \u201cis that investors only ever own one share, and that share always beats inflation, so you get the full benefits of indexation. But in practice, people will own a range of shares and 30-to-40 per cent \u2013 up to 60 per cent \u2013 will underperform. With most people\u2019s portfolios, you\u2019ll have one or two that are absolute winners. Now they\u2019ll tax you on your winners really highly, but they don\u2019t share the losses on your losers.\u201d<\/p>\n In practice, this means that an investor could end up paying more tax than they make in profits. Derek Francis\u2019 brother, Geoff, a former Treasury assistant secretary responsible for taxation frameworks, indirect and industry tax, uses the example of a portfolio of the Big Four banks over the past 20 years<\/a>. Only one of the four \u2013 the Commonwealth Bank \u2013 provided a capital gain above the inflation rate. The others performed below inflation. Under the new system, the gain would be taxed, while the losses are the investor\u2019s to keep. That would result in a tax rate 150 per cent above the total real return<\/a>.<\/p>\n Related Article But the effect on share investing is not as meme-able as the tax impact on businesses and start-ups, which was immediately pilloried by those affected. The internet was awash with bitter memes welcoming Prime Minister Anthony Albanese as a new equity partner, who takes no risks and makes no contribution to growth but grabs a huge chunk of the eventual wins \u2013 if they come.<\/p>\n And it\u2019s not as easily turned into a slogan as the tax on testamentary trusts, which was quickly dubbed a \u201cdeath tax\u201d because it would grab money and assets put aside to protect young or disabled children in the event of both parents\u2019 death.<\/p>\n But it\u2019s devastating to anyone who followed the government\u2019s advice on its Moneysmart website<\/a> to diversify investments in a portfolio.<\/p>\n The result, according to the Francis brothers, is that Australia will have the highest capital gains tax in the world<\/a> \u2013 at least 50 per cent, which is more than 140 per cent above the 20 per cent world average.<\/p>\n Investor David McMahon, a former deputy editor of BlackRock Investment Institute, has modelled 50,000 different portfolios of 20 stocks using the actual historical share prices. His conclusion is that the tax will go up to 55 per cent.<\/p>\n Francis compares discovering this flaw to the moment in Margin Call, a film about the global financial crisis, when the error which brings down the entire model is pointed out<\/a>.<\/p>\n It wasn\u2019t corrected in the \u201ccarve-outs\u201d from the budget measures the government announced this week. Albanese and Chalmers only made exemptions for easily understood objections, which had made their way out of the financial press and into the popular consciousness. But it invites scrutiny of all the modelling on which the 2026 budget measures are based.<\/p>\n Francis can only explain the mistake as the result of a rush job. Treasury, he speculates, under the pump to do as the government asked, only considered the average return, not the distribution \u2013 perhaps grabbing the aggregate return on the ASX and using that as the basis for its assumptions.<\/p>\n There are more landmines buried in the detail. Melbourne tax adviser Andrew Clements has pointed out that the budget doesn\u2019t include income averaging, which allows people with lumpy earnings \u2013 such as farmers, sportspeople and musicians \u2013 to spread an income spike in one year over a number of lower-earning years. Faith groups alerted the government that tax changes would have reduced philanthropy \u2013 though that has been reversed.<\/p>\n Instead of slowing down, given the many mistakes which have been uncovered \u2013 or perhaps eager to hush them up \u2013 the government responded to the backlash with a rushed two-day Senate inquiry. Many credible voices opposed to the changes on the grounds outlined above were excluded from the process, while submissions were published late<\/a>.<\/p>\n As for the 75,000 homes \u2026 who knows? That number could be built on solid foundations. Or, buried in the assumptions which aren\u2019t made public, there might be another landmine about to lay waste to the Australian dream. An improvised exploding economic device, lurking in the modelling.<\/p>\n Parnell Palme McGuinness is an insights and advocacy strategist. She has done work for the Liberal Party and the German Greens and is a senior fellow at the Centre for Independent Studies.<\/p>\n Get a weekly wrap of views that will challenge, champion and inform your own. Sign up for our Opinion newsletter<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n Remove items from your saved list<\/a> to add more.<\/p>\n![\"The](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/06\/168f8c9ee24bbf4f18448fc18184f26f86a1710d.jpeg\")
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