No CGT May Offer Opportunities to Rethink Policies to Address Inequality

Child Poverty Action Group cautiously welcomes the government’s response to the Tax Working Group’s (TWG) final report.  

The Prime Minister has taken Capital Gains Tax off her Government’s policy agenda.  “This provides the opportunity to explore other policies that could better meet the express instructions from the Minister of Finance to the TWG to address housing affordability and reduce inequality,” says Associate Professor Susan St John, CPAG’s Economics Spokesperson.

CPAG believes that while the intent of CGT was good, the logistics of the comprehensive CGT were mind-blowing and even the more modest option for investment housing only recommended by the minority report would flounder because of the complexity of exempting the family home.

This does not mean nothing should be done .“On numerous occasions CPAG has suggested that net equity in housing and residential land should be aggregated for each person and treated as if  it was earning interest in a bank deposit, and taxed along with other income. A fixed exemption would mean that the vast majority of homeowners had nothing to pay.” says Alan Johnson, CPAG’s co convenor.

 “Compared to a CGT the net equity approach is much more capable of addressing inequality and overtime should improve housing affordability

“Moreover, it would encourage empty houses to be rented and the housing stock to be better used, save on accountants’ fees, and stop negative gearing.”  says Johnson.

While the TWG had to provide revenue neutral options, the TWG also are clear that if boosting low incomes is the aim, using the CGT revenue to increase the threshold for the 10.5% bracket would have been much inferior to a policy of direct redistribution.

“With meaningful and immediate revenue from the net equity approach, the income distribution could be vastly improved by increasing core benefits and Working for Families tax credits to align better to the Government’s aim of reducing child poverty,” says Dr St John.

The need for this revenue will be clearer when the Welfare Expert Advisory Group reports in early May.”