There are two other dire consequences of this budget that nobody is talking about. The first is that the budget’s introduction of an effective capital gains tax of up to 45 per cent - 47 per cent – previously capped at 23.5 per cent for assets held more than 12 months – hits younger savers hardest, precisely because they have the highest portfolio exposures to high-growth assets such as listed global equities, Australian shares, crypto, venture capital and private equity. When anyone builds a portfolio for younger investors, they rationally load them up with the highest-growth and most volatile assets on the basis that a long investment horizon allows them to weather the inevitable volatility storms. As investors age, these portfolios shift into more stable and income-rich asset classes such as cash and bonds, which are net beneficiaries of the CGT increase, because their post-tax returns now look more attractive relative to growth assets. As many investors have noted online, why would you allocate to a bunch of high-risk growth companies when Albanese and Chalmers are going to take almost half the upside while wearing none of the downside? Rather than helping younger generations, the highest CGT rate in the developed world will hammer them. And it is a double whammy because the many early-stage companies that have historically employed 20- and 30-somethings will now consider moving overseas. Their investors will simply not want to trade away half of their upside to the public oligarchs. If you allocated $10,000 to bitcoin after the March 2020 pandemic shock – which many young punters did, and which would now be worth approximately $92,000 – the new CGT regime imposes vastly higher amounts of tax. A self-funded retiree on the tax-free threshold would go from paying nothing to almost $24,000. Somebody earning between $18,000 and $45,000 a year would see their tax bill jump from $7400 to $23,900 – a 222 per cent increase. Those in the $45,000 to $190,000-plus tax brackets would have their bill rise by 93 per cent. Since the new CGT regime is, by definition, much more costly on higher-growth investments, it will punish younger investors who have much greater risk appetites and lower average incomes. afr.com/markets/equity…
