Everyone’s talking about the impact on property regarding the proposed changes to capital gains tax (CGT) to be announced in the federal budget next week, but almost no one is talking about the impact on shares, which is a much bigger deal than people realise. If the government cuts the current 50% CGT discount to 33% or even 25%, investors, ETF holders, and even crypto investors are likely to be hit too.
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This changes the equation for millions of Australians because, unlike property, the share market is often the only realistic entry point for younger Australians trying to build wealth. Many can’t afford investment properties, so they turn to shares, ETFs, and long-term investing to get ahead outside of wages alone.
Now that path may become far less attractive. Australians already take risks by investing their capital and wearing the losses when markets fall. Yet when they finally make a profit, the government now wants a larger cut of the reward.
The irony of this is hard to ignore. Years of excessive government spending helped fuel inflation, which pushed interest rates higher and crushed household budgets. Now, after Australians have already been squeezed by rising living costs, the proposed solution appears to be taxing investment gains even harder.
So, what does the change to CGT mean for investors? If the reward for holding long-term keeps shrinking, Australians may start questioning why they should sit through major downturns just to receive less favourable tax outcomes at the end of it. The traditional “buy and hold no matter what” approach may become harder to justify.
Instead, this could push more investors toward becoming active risk managers rather than passive holders. Protecting capital during major market downturns, taking profits when markets become overheated, and managing tax outcomes more strategically may become increasingly important. Because once investing becomes less rewarding, people don’t just make fewer trades, they start changing the entire way they invest.
Whether you’re young or nearing retirement, Australians who have never thought about actively managing their investments may soon be forced to learn because in this environment, simply holding and hoping may no longer be enough to maximise long-term returns.
Good luck and good trading.
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Dale Gillham is Chief Analyst at Wealth Within and an international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au.
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