IGR criticised for failing to factor in capital gains

By Fergus Halliday

August 31 2021
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Concerns over future spending raised by the government’s recent intergenerational reports fail to scrutinise the growth and distribution of Australia’s overall wealth, experts say.

IGR criticised for failing to factor-in capital gains

A new report by The Australia Institute has criticised the government’s latest intergenerational report, arguing that it overlooks the impact that capital gains will have on the wealth of Australians over time.

“It seemed bizarre that the government could talk about such things as fiscal ‘burdens’ and the call on taxpayers without mentioning $1.7 trillion in capital gains and, more importantly, who received that $1.7 trillion,” the report said.

Since the majority of wealth in Australia is currently held by those over the age of 55, David Richardson, senior research fellow at The Australia Institute, argued that it is older Australians who will benefit the most.

“In the coming decades, not only is the wealth of Australians likely to grow rapidly, but that wealth will almost certainly flow primarily to those aged over 55,” he said.

Mr Richardson admitted that rapid increases in wealth, like the ones Australia is expected to have over the next decade, are “a good problem to have”, but he warned that unless we reform our tax system, wealth generation is likely to have significant side effects.

“The benefits of growing wealth will come with significant costs in the form of inequality and economic inefficiency,” he warned.

Mr Richardson said that because Australia currently lacks in wealth taxes and collects relatively little from capital gains, government revenues have failed to keep up with the growing wealth of Australians.

As this dynamic continues, he foretold of the “enormous problems associated” with unequal distribution of higher and higher wealth holdings.

Mr Richardson said it was remarkable that the last five intergenerational reports produced by the Treasury had failed to examine or consider the rate of wealth growth in Australia and how it is distributed.

“How can you ask about intergenerational equity without considering wealth and the way it is, or isn’t, taxed?” the report said.

Mr Richardson argued that GDP alone is not a good measure of Australia’s capacity to pay for government services, and that including capital gains in income measures quickly “dispels” any concern about future fiscal burdens.

The report said that by 2060, the federal government’s current self-imposed spending cap of 23.9 per cent of GDP might be as low as 10.4 per cent once capital gains are factored in.

“The Australian government may keep choosing not to tax wealth and capital gains of our wealthiest people as thoroughly as it taxes the incomes of ordinary workers. However, such choices make it hard to argue that Australia ‘can’t afford’ to provide healthcare in the years to come to what will clearly be the wealthiest generation Australia has ever known,” he said.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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