Join our daily newsletter At The Bell to receive exclusive market insights
The Federal Budget released last night makes sweeping changes to the tax treatment of investments. On balance, the budget is mildly stimulatory and therefore inflationary, based on heroically optimistic assumptions about growth and the ability to cut costs, and makes the classic political error of moving the goalposts and assuming the players won’t change the way they play.
Changes to Capital Gains Tax (CGT) will affect most investment assets, including property and shares. Changes to negative gearing are aimed at existing housing, but are grandfathered for existing investments. The government may hope that this preservation of existing arrangements until the property is sold will stop investors from leaving the property market, and it’s likely they are right in the short term.
The big structural problem is that in any downturn where jobs are lost or income reduced, the value of negative gearing arrangements drops through the floor. This may see large numbers of property investors heading for the exits at once, with no investors looking to buy under the new arrangements. The potential for a property market crash increased last night.
Additionally, changes to the treatment of certain trusts, including family trusts, is forecast to raise substantial new revenue. What is much more likely is that those rich and smart enough to benefit from trust structures will simply re-arrange their investments.
The budget is cast as a way to address “intergenerational inequality”. In reality, it is closer to class warfare, placing an increased burden on aspiring Australians and wealth creation.
The government abandoned older Australians. This is looking increasingly like an acknowledgement of reality. In the lead-up to the 2022 election, the government promised to implement the already legislated stage three tax cuts. After the election, the government struck down the legislation, hurting mainly older, higher-income Australians. In the lead-up to the 2025 election, the government gave an iron-clad commitment that it would not change capital gains tax (CGT) or negative gearing on housing. Less than one year later, that commitment lies in tatters.
So rather than attempting to “fool all of the people, all of the time” the government is focusing on the voters who do not deeply resent its broken promises, pinning its electoral hopes on the fact that younger generations will outgrow the disenfranchised older Australians by the 2028 election.
It gets worse. The National Disability Insurance Scheme is by far the biggest source of savings in this budget. It is premised that the growth in NDIS claims can be reduced from 16% last year to 2% for the next three years. While the intent is admirable, the target is highly ambitious, and there is little else to turn to if this cost-cutting exercise is not successful. If the forecasts for growth in the Australian economy turn out to also be optimistic, the forecast deficits could deteriorate rapidly.
Implications for investors
There are two key areas for investors to consider: Investment structures and investment strategy. Still, standing tax effective structures like Self-Managed Superannuation Funds may become more attractive. Some who currently run family trusts may look at distributing or divesting assets. This is a specialist area, and investors should consider outside advice.
The second major implication is that investors may now turn to assets that produce income, rather than offer significant growth. The good news is that many locally listed resource and finance stocks fit this profile, with the added bonus of tax franking credits in many cases increasing the investment appeal.
Join the discussion. See what’s trending right now on Australia’s largest stock forum and be part of the conversations that move the markets.
Any comments, links or other information shared by users of the community are opinions of the respective authors and do not reflect the opinions, views, or positions of Moomoo Technologies Inc. (MTI), its affiliates, or any employees. Consult a qualified financial or tax advisor for your personal financial planning and tax situations. Moomoo is a financial and trading app offered by MTI. MTI is not an investment adviser or a broker-dealer, and it provides neither investment nor financial advice nor securities trading services.
The material provided in this article is for information only and should not be treated as investment advice. Viewers are encouraged to conduct their own research and consult with a certified financial advisor before making any investment decisions. For full disclaimer information, please click here.
