I'm Daniel James and you're listening to seven AM in Canberra. A fight both major parties have tried to avoid is back. The Senate is examining the capital gains tax discount, the Howard era change that slash tax on asset profits and helped turn housing into a national obsession. It's long being considered untouchable, especially after Labour's bruising twenty nineteen defeat, But with house prices entrenched, inequality rising, and the budget and distrain,
pressure is building on the government to do something. Today, Economist and executive director of the Australian Institute Richard Dennis on why the tax concession exists, the vested interests resisting change, and whether the politics around it are finally shifting. It's Saturday, February twenty eight Richard, Thanks for joining us. Right now the Senate is running an inquiry into capital gains tax discount. What exactly are they examining and why is it back on the agenda now?
So in Australia we have this sort of bizarre situation that if you work full time and earn one hundred thousand dollars, we charge you tax. But if you earn one hundred thousand dollars from Capital Gain. If you get one hundred thousand bucks for not working, we'll give you a fifty percent discount on the amount of tax you have to pay. It's truly remarkable, incredibly inequitable, and Peter Costello and John Howard introduced it get this, amongst other things.
They said it would help stimulate investment in housing and drive house prices down, and of course the absolute opposite has happened and house prices have grown spectacularly since. So Yes, the Senate is having an inquiry into these incredibly inequitable and ineffective tax breaks. And luckily, you know, after years of pressure, decades of pressure from some of us, the government are making noises like, yeah, maybe it's time to fix this.
Let me make a declaration of the state.
Perhaps one of the.
Few people you have soon in public life have spent thirty years working for the trade unions, another twenty six years working for Lindsay Fox, one of the richest people in Australia, one of the great entrepreneurs.
A number of people have appeared before the inquiry this past week. One of them was Bill Kelty, the former labor heavyweight and veteran trade unions. What did he have to say, Well.
I think you know Kelty and former RBA governor Bernie Fraser and former Secretary of Treasury Ken Henry. You know, they're all out there. Who exactly because this is obvious, you know, it's frustrated. I'm an economist, apologies for that. It's often the disconnect in Australia between what economists think and what non economist politicians say is good for the economy.
The disconnect is, you know, it's a cabin So it's really quite straightforward from an economic point of view that this fifty percent capital gains tax discount gives people an incentive to bid up the prices of housing assets in a way that helps helps nobody accept them in the short term.
What would you be surprised? The capital gainstick discount favors people have got capital, then people likely to get capital, those who are older and recruit capital. Therefore, there should be nothing absolutely surprising about it.
But of course Bill Shorten in twenty nineteen proposed changes, and everyone likes to pretend that. In twenty nineteen Bill Shorten, you know, got punished for proposing a progressive tax agender. But what the top secret data held on the Australian Electoral Commission website tells us is that Labour's vote went up in the highest income electorates in the country. So, unfortunately, Wealth and Power in Australia are very good at telling us scary stories about you better not have a go
at Wealth and Power. Ever, I'll hate you for that. My prediction is that after Labor does something on capital gains tax, it'll be so popular that the Liberals will actually end up supporting it. Remember with the Stage three tax cuts, the Liberals were like, you can't break a promise, you can't break a promise, And within twenty four hours of Labour saying oh we've had a second look, we're going to fix this, the Liberals came out and said, yeah, fair point.
We don't really want to.
Go to an election opposing that.
Increase the capital gains tax produced a discount, but you don't address a reform.
What does he do. One thing Bill Kelty also said was that scrapping the discount alone wouldn't fix the underlying problem of inequality. Things.
If I can't pay the bills next week, I'm a young person has to go to the second VIEWA say, do you feel better because the government has actually reduced a couple of games discount? I said, what makes no difference to me. I still can't pay the bills.
So what would scrapping the discount achieve in your analysis?
Oh, look, it achieve a lot of things. It will collect a lot of revenue, and how you spend that revenue really matters. Look, I'm not quite sure what he means by that. The capital gains tax concession is an enormous incentive for people to use housing assets as a speculative low tax vehicle. I think removing those concessions will have quite a significant impact on housing affordability going forward and on equity going forward.
To the point of political pressure, like you said. Bernie Fraser also appeared before the committee.
That case can be made for doing away with the discount on the gains capital game stakes are bolishing it all together, and.
He told the inquiry he'd abolige to discount outright, but described a cartel of vested interests blocking reform. Who is that cartel? And how does that stop change?
Stay classy Australia. Yeah, Look, unfortunately so many things in Australia are off limits it's.
This cartel which comprises existing homeowners, property developers, and not least lots of politicians who like to see house prices rise and go on rising.
What happens in Australia. I don't hate political parties, but when you have two parties where what the leader says or what the party are increase sticks and sticks hard, it's very easy for powerful groups to take things off the agenda because you only have to convince two people. Let's not have this fight. Come on, we can all be grown up, you know, labor and liberal. You can have a nice big fight about industrial relations. You can even have a nice big fight about the company tax
rate or something if you want. But how about we put taxing gas over here in the too hard basket. How about we put gambling reform over here? How about and for years we did this with same sex marriage, right, everyone knew most people supported it, Everyone knew that most people in Parliament supported it. But if the leaders of both parties agree to call it a drawer and just
not talk about it, then it doesn't happen. And I think Australia is kind of uniquely vulnerable to this because this historic two party system with this uniquely binding party caucus vote culture in Australia just meant that running dead on an issue was easy to achieve if you could get two groups to agree not to talk about it.
So do you think Labour's actually going to change this when it comes to capital gains or will they merely say that they've had an inquiry to look at it, or they're just got to think around the edges. What's your feeling on that, Richard.
My feeling is they will do something that's not based on any insider speculation. It's just a combination of things. The case for it is so strong, It's always been so strong. You know, the Australians has been banging on about this, you know nearly twenty years now that in one week you can see Bernie Fraser, Bill Kelty, Matt Coben at the you know, the CBA boss is out saying it right, So it's a real everyone's now. Oh yeah, yeah.
I've always supported that. I've always supported that. So these people look powerful by being right, They look powerful by being on the side of power. They wouldn't all be out there saying they think something should happen if they thought there was no chance it's going to happen, So I think it's I think lots of people want to do it for lots of reasons. It to solve a big economic problem, it'll help solve or reduce inequality in Australia,
and it's the right thing to do. And we've just put it off for a long time because that's what we do in Australia. We put off things that powerful people don't want to do.
Coming up, Albanezi stumped over beer and gas.
This one has come in from Andrew. He says, please get Albo to explain how we live in a country with some of the best natural resources in the world, but the average person pays more in tax to have a beer than the billion dollar mining companies get taxed, bleeding our resources dryer. How do you respond to that, Well.
Two things.
One is that the mining companies do pay taxes.
And if we pivot to the political landscape more broadly, you say, there are two questions you get all the time. One is whether the till should form a part and the other is why Australia gives so much of its gas away. Why are those questions linked?
I guess I already hinted at that. It's because when there's two leaders of two parties that can between them keep something off the agenda, and keeping something off the agenda is different from persuading everyone.
It's not a problem.
Keeping things off the agenda is easy, just don't talk about it. So when neither major party want to talk about something is very hard in Australia to make people care about it. And for whatever reason, both major parties have for decades just gone along with the idea that we should literally give more than half the gas we export away for free. That's not what they do in Norway, that's not what they do in Qatar, it's not what they do in Saudi Arabia, but it is what we
do in Australia. And when both major parties decided that they didn't want to have a row with the gas industry, and in turn I didn't want to have a row with each other about that issue, it just wasn't talked about. It is being talked about now.
Great. How do we live in a country that exports one of the biggest gas exporters in.
The world and we're getting more tax from beer.
Than pot.
People are appalled to learn that, you know, beer drinkers pay more beer excise than we collect in petroleum resource for intact. Appalling, It is appalling. But here's the thing,
it's not news. This is where I think independence and minor parties have got a really important role to play, and a growing role because even though they might not have votes in the Parliament today that can force Labor to do anything, the fact that this question now won't go away because so many voices that can't be co opted, so many voices that can't be silenced by party discipline or a promotion to cabinets or a job after parliament
if you do the Resources minister's job. Well, there are so many independents in Parliament now saying hang on, I call bullshit, like I keep hearing we can't afford to spend more on mental health and it turns out we're giving half our gas away for free and getting more tax from beer. This is an outrage now that you know one nation is saying that Greens are saying that David Pocock's saying that a bunch of independence in former Liberal seats are saying that it just gets harder and
harder for the Labor and Liberal Party to go. Yeah, but we're still not going to talk about it, are we.
So the tails strength is in their independence.
I think so, And you know they should do what they want to do. They want to form a party, they should. I just think it's a bad idea because the word independence is a good word. Clearly it's bringing a lot of growing market share if you want to use that terminology to them, voters are responding to it. One thing is to do something absurd and say will have the Independence Party. Well that's a contradiction in terms, so it's not a thing all. The other thing is
just stop using the word that defines you. I'm independent. You might not agree with everything I say, but I can just tell you what I think. They could abandon the word independent. They could abandon that independence of thought and say no, no, I'd rather form a package deal. That's fine.
If they want to do that, they should, but by definition, giving up the thing that makes them different, giving up the thing that voters are currently responding to, to look more like the Labor Party and more like the Liberal party.
So probably there are there liberal and Labor MPs. You think it's crazy, we don't taxt gas properly, but they can't say it until the whole party agrees. Look, there are.
Dozens of MPs in the major parties that think it is not just ridiculous but one of the low points in our democracy that we can't even haven't even met able to talk about it.
That's how good.
The fossil fuel industry, mainly the gas industry, have been in buying silence, and that's what this is. It's the buying of silence. So yeah, no, Look, I don't think you'll find many people that will stand up and try to defend the status quo, and when they do, it's such a half asked defense. I mean, there was a really good interview that Conrad from Punter's Politics did with Tanya Plibasec, really long interview that she gave him, and
he pushed it pretty hard on it. Come on, come on, surely you and she's like, oh, of course, I want to collect more tax from them, but we just kind of can't. It's like, yes, we can.
You know, the resources that are underneath our soil and in our oceans belong to every Australian and we should be getting a fair return on them.
I've collected done make a policy.
Well, I agree with that and we you know, we tried to do it, and we tried to do it at at a higher rate. We eventually had to compromise and do it at a lower rate, and even that once we left government was reversed.
So are we stuck in this cycle, Richard, until we get a massive increasive independence in the parliament, or that we have permanent minority government. I mean, is the status quoe likely to change it? Or are we stuck in this cycle forevermore?
No?
No, I'll make a joke at my spence. I might be a bit centrist here. There's a middle path, Daniel. The Liberal Party got a warning in twenty nineteen when Zalie Stegel took the once safe seat of Wringer off Tony Abbott. The Liberal Party in twenty nineteen could have thought, oh, that's risky, we should change direction, but they chose not to.
In twenty twenty two, the Liberal Party lost six more seats safe seats to independence, and they could have in twenty twenty two when well, that's risky, maybe we should change direction. And then in twenty twenty five it happened again, and this still won't change direction. What's interesting to me is well be smarter than that. Now, Labor did well at the last election, obviously won a lot of seats,
but off a very low primary vote. Well, guess what at the next election, they've kind of got their liberal moment. So you framed the question as you know, is it all or nothing? Just because the liberals were too dumb to listen doesn't mean Labor's too dumb to listen. But if Labor are too dumb to listen, then yep, that's what's going to happen. They're going to lose. They're going to lose more seats as more people go. That's just crazy.
Richie will let you go and get your coffee. Thanks so much for your time. Thank you. Seven am is an early show from Solstice Spinia. It's made by Attigus Basto, Ariel Richards, Chris Dangate, Crystal Color, Nicole Johnston, Travis Evans, Zoltan Veecio and me Daniel James. A theme music is by nev Beckley and Josh Hogan of Bonvalode Bordier. Thanks for listening to seven Am. Have a great weekend.