Peta Credlin:
But before that, I want to go to some new research from the Institute of Public Affairs, which suggests that Australia’s so-called 50% tax discount on capital gains is wildly misleading, with inflation punishing or pushing tax rates to real profits on 100% or more. The research also warns that cutting the discount could actually make our housing problems worse and further discourage investment, particularly private-sector holding of rental homes.
Here to talk us through it, the chief economist at the IPA, Adam Creighton. Well, okay. Take your big brain away for a moment. In layman’s terms, you’ve done a huge amount of research here. What does your paper reveal?
Adam Creighton:
Well, look, I think just as you said, I think it’s misleading. They don’t do algebra or math very well, but basically if the inflation that you experience on your asset return over five, 10 years on your investment property, if that’s more than 50% of your capital gain, then the old indexation method gives you a much lower rate of tax.
So the idea that the discount, the 50% discount that we’ve had since 999, is always a discount is totally flawed. And indeed, I look back at the returns we’ve had in property and the share markets since 999, and basically over half of the five-year intervals, if you’d sold, the tax rate that you would have paid on the old method was actually lower than the new method. Because under the old method, the indexation method, of course, they would increase the purchase price by inflation.
So look, it’s a bit more complicated, but the prevailing narrative in the media is certainly that this was some huge discount, and it’s just quite simply not. And indeed, take now, we’ve got 4% inflation. So I just did some basic modelling. So just say you had average 4% inflation over 10 years, and your average return over 10 years was 5% a year, so not terrible, then the tax rate on the real gain is 100%. And under a 33% discount would be 133%.
So basically if they cut it to 33%, which I really hope they don’t do, it’s a terrible, terrible policy, a massive increase in taxation, and of course people just won’t sell their assets. They’ll just hold them till they die. So they’re not going to make any money out of it.
Peta Credlin:
So it doesn’t do anything much in terms of housing stock and-
Adam Creighton:
Nothing.
Peta Credlin:
Turning over the housing stock. But it would also be a massive disincentive for anyone who thinks, “I got a little bit of extra money there. I put it into the shares and try and provide for my retirement, or do I get an investment property?” You wouldn’t go near an investment property.
Adam Creighton:
No, certainly that’s true, especially right now. We’ve got 4% inflation now, probably going to go to 5%, and then who knows after that, if there’s another COVID or something. Basically, if you were wise and you’re investing, you’d realise that if they cut it to 33%, you’ll be paying a huge amount of tax. So you just won’t invest at all, or you won’t sell. So it’s throwing sand in the wheels on a massive scale, I would say. It’s not being thought through.
And look, we have to wait till the budget, but it’s not looking good. There’ve been quite a lot of leaks about –
Peta Credlin:
Yeah, I think something’s coming, absolutely. Don’t you?
Adam Creighton:
Yes. Oh, something’s definitely coming. And I did see one good story that might have been just a flat rate of tax and some indexation, but I doubt they’re going to do something so sensible based on the track record of this government. So it’s all about politics. I mean, capital gains tax doesn’t raise much money anyway, really.
Peta Credlin:
But if they’re trying to deal with the politics of envy, which is basically what this is, right?
Adam Creighton:
Oh, of course. Yeah.
Peta Credlin:
The politics of envy, then stop people having nine investment properties, but leave people have an investment property of one or two. Because for a lot of people who are not sophisticated investors, the bricks and mortar of a property, particularly if you work with your hands, if you’re a trader, you can do it up, and you could increase its value over time. That’s what a lot of people are comfortable with, Adam.
So that wouldn’t change the game so much. It would get away, I guess, the taint that people who get special deals with lots of properties appear to be getting out there in the real world.
Adam Creighton:
Yeah. Look, that’s not a bad idea, but the fundamental problem is you’ve got extremely high marginal tax rate, 47%. And it’s not just a small group of people owing more, okay?
Peta Credlin:
Yeah, yeah. Well, David Pearl was making the point about how bracket creep is letting a lot of people in.
Adam Creighton:
So basically about 1,000,000 Australians pay the top rate, where it was only 250,000 about 10 years ago. And the only way to escape that is basically to do negative gearing. So the real problem is the top marginal tax rate, cuts in too low, and the rate itself is too high.
So if they change that, the level should be $280,000 now if it had been indexed since 2008. It hasn’t been. So you have people quite naturally trying to escape that taxation noose, and they go into negatively get property. And it’s not necessarily a winner, by the way.
Peta Credlin:
No.
Adam Creighton:
And I don’t think right now it would be. We’ve got extremely high house prices. I mean, do we really think that they’re going to go another 50%? I don’t think so. Look at Canada. I mean, Toronto’s market’s down 20% in about a year. So I think the story in about a year could not be too high house prices, but it could be the house prices are falling.
Peta Credlin:
Hey, I want to play a grab last night from the Prime Minister at the Minerals Council dinner. Have a listen.
Anthony Albanese:
Over the years, I acknowledge that from time to time, we’ve had our differences on policy, just as the companies in this room are not always on the same page as each other. Of course, we do not have to agree on every aspect of every issue to build a constructive relationship in the national interest. That’s what matters, especially right now.
In uncertain times, Australians expect all of us to put the national interest first.
Peta Credlin:
So he was part of a government that whacked the carbon tax on the mining sector, whacked the mining tax on the mining sector. His budget’s in trouble. He lives off the revenue profits that they provide to Australia, as they should. You can only sell that bit of coal once, I have no issue with that.
That’s last night. At the same time he says all of that lovely, kind words to the sector, he then goes out today and signs this trade deal with EU, and I haven’t seen the full text, it’ll be about that big in terms of its paperweight. But what I have seen, and what I know of the New Zealand deal, Adam, is they’re backdooring all of this green carbon policy stuff out of Europe and turning the Paris Agreement, which was non-binding, into really binding hooks in a trade deal. And I think that’s wrong.
Adam Creighton:
No, look, I think it’s wrong too. Firstly, on the mining speech, the cynic in me thinks there must be something coming up in the budget that’s going to damage the mining industry in some way.
Peta Credlin:
I think you’re right. Yes, yes.
Adam Creighton:
They’re trying to butter them up. But on the trade deal today, look, I mean, for some industries, it was a modest improvement, but for the beef export industry, it was not particularly good at all. For cars, it barely made –
Peta Credlin:
Poor for dairy.
Adam Creighton:
And as you say, I mean, it’s basically trying to implement the Paris deal by the backdoor. And this is a deal that’s not popular, I don’t think, anymore. And certainly in a few years time, it’s not going to be, but this deal, I imagine, last five, 10, 15 years, and I think as you pointed out earlier, there are clauses in the deal that they can punish Australia –
Peta Credlin:
All right. I encourage you when the full text lands on the website, get your head around it, write us a column and we’ll get you back on.
Adam Creighton:
I will. Thanks, Peta.
Peta Credlin:
Thanks, Adam.
This transcript with Adam Creighton talking on the Credlin Sky News Australia from 24 March 2026 has been edited for clarity.
