Geoff Wilson, CEO and founding director of Wilson Asset Management, says the previous iteration of the legislation “discouraged” people from making long-term investment decisions, which are vital to increase productivity.
“[If the government had not made changes] people would have gone for lower-risk strategies, and the negative impact on the Australian economy would have been significant,” Wilson said.
“We did a whole lot of research – about 150 pages of detailed research – and the deadweight loss to the Australian economy was going to be $94.5 billion. To me, the negative and unintended consequences were going to be monumental to the Australian economy.”
Wilson said the “two-and-three-quarter years of pain and uncertainty” were incredibly frustrating for the investor and start-up sectors.
“One of the incredibly frustrating things is, why did it take so long [to make these changes]? We know uncertainty isn’t good for capital formation. People hate uncertainty.”
“Why would you invest when there’s an uncertain landscape, and that’s what the Treasurer created for nearly three years.”
Wilson said his company had made a submission during the last economic roundtable, which was sent to all participants, about the impact taxing unrealised gains would have had on productivity.
He told SMSF Adviser that last fiscal year, 437,000 new businesses were created, with a total of 2.72 million businesses currently in Australia.
“Our research paper, Taxing Innovation into Oblivion, found that more than 611,000 small businesses and start-ups would have been negatively impacted. The cost would not just be borne by entrepreneurs. It would have resulted in $19.7 billion of lost tax revenue and disrupted over 200,000 Australian employees working in small businesses.”
“These are precisely the companies we rely on to drive innovation, create jobs, and lift Australia’s competitiveness. Taxing them on gains they hadn’t realised would stifle risk taking and push capital offshore, hollowing out our entrepreneurial ecosystem.”
He continued that the negative impacts on productivity would have been significant.
“Our research estimated the deadweight loss from taxing unrealised gains was $94.5 billion; a long-standing economic theory that Treasury failed to calculate. This is not just an abstract number: it represents fewer tools, fewer technologies, and fewer opportunities for Australian workers to be more productive and better paid.”
“We proposed a progressive tax on realised gains in superannuation at a higher rate. This is fairer, simpler, more economically sound and would raise more revenue than Treasury’s own forecast for the unrealised gains tax.”
Wilson said he was surprised by the turnaround from the government after the Treasurer consistently stated that there would be no change to the original policy position.
“It’s frustrating that it took so long. A 25-year-old nurse would have been captured by the tax if it wasn’t indexed, but now, at least those people will get a slight benefit, but will still be worse off each year that they don’t put money into super.”
There were many remedies suggestible for better policy design however, the unspoken issue is the inflexibility of the APRA fund administration systems.
Even tax rate changes are complicated (costly).
Version 1 of DIV 296 was designed with a “low touch “ impact for APRA Funds.
As it transpired, even that thesis did hold true.
The research done by WAM has been very constructive and definitely shone the torch on Chalmer’s lack of vision and understanding/exploring downstream issues. He simply wants a few sound bites to spruik his imaginary budget surplus. Time for a deep thinking Treasurer to be appointed .