Saul Eslake

Why should someone who earns, say, $120,000 in capital gains pay less tax on that $120,000 than someone who's earned $120,000 in wages or salaries?

And that raises, I think, some important points of equity or fairness.

What they're proposing is that the system which has been in place since 1999, whereby you pay tax on capital gains, that is the increase in the value of an investment when you sell it, at half the rate that would apply to ordinary income, for example, from wages and salaries or interest.

They're proposing to go back, in essence, to the system that applied between 1985, when capital gains tax was first introduced by then Treasurer Paul Keating, to 1999, under which you paid tax on capital gains at the same rate you would pay on a similar amount of other incomes, such as from wages and salaries.

except that the cost base or purchase price of the investment would be indexed for inflation as measured by the consumer price index over the period in which you held it, so that in effect you were paying tax on what economists call the real gain –

But that's the gist of it, going from the so-called 50% discount on nominal gains back to a system that taxes real gains.

And for some investors, this change will result in them paying less tax than they would have under the regime that's been in place since 1999.

And for others, those

who've invested in assets that have risen at more than double the inflation rate, will end up paying more tax under the proposed changes than they would have otherwise.

Well, I support the broad thrust of what the government is trying to do, not just with regard to capital gains tax, but negative gearing and the tax treatment of trusts.

And the reason for that is that as a matter of principle, that most economists hold that

people earning similar amounts of income should be expected to make similar contributions by way of tax to the cost of providing schools, hospitals, policing, defence and other services that we expect governments to provide.

Or to put it a different way,

Why should someone who earns, say, $120,000 in capital gains pay less tax on that $120,000 than someone who's earned $120,000 in wages or salaries?

And that raises, I think, some important points of equity or fairness because...

The evidence shows that people who earn capital gains are disproportionately upper income or wealthier people, and they're also typically older people.

Now, there are some people under the age of 35 who have capital gains, but those capital gains are typically much smaller than those earned by people on higher incomes or who are over, say, 55, and far fewer.

young people and people who are not in the top tax bracket have capital gains.

I mean, to put one figure that I think people will be able to grasp, if you are in the top tax bracket, that is if you have an income in excess of $180,000 per annum, you are more than three times as likely to be a negatively geared property investor as if you're not in the top tax bracket.

So the government's trying to