Chapter 1: What is the main topic discussed in this episode?
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It's the morning after the big budget release and there's a certain buzz here in Canberra. The Treasurer claims this is the most ambitious budget in decades and it will make things fairer for young Australians. But what exactly will the budget mean for business, the economy and you? Welcome to ABC Business Daily. I'm Carrington Clarke.
And I'm ABC Business Reporter Steph Chalmers.
Steph, we're separated, unfortunately, this time around. I'm still in Parliament House. You're in Sydney. We had two different lock-up experiences yesterday. but both of us were deprived of our communication with the outside world for an extended period. Mine was with the political journalists of the ABC locked down here in Parliament House. We had visits from the Treasurer.
We had the Prime Minister stopped by, the Housing Minister. What was it like for you and what was the whole experience of trying to figure out exactly what this budget was going to do to the Australian economy and to our taxation system?
Yeah, I do have a bit of FOMO having been to Canberra in the past, but since COVID they kind of discovered you can have a remote lock-up. So now we're actually locked up in the ABC at Ultimo in Sydney, which is kind of less exciting, but it is still – that kind of unique experience of not having your phone, kind of being locked in with all your colleagues.
We also had some economists from outside come in and, you know, act as our experts, kind of talk us through what they were seeing. There's a lot of snacks floating around. There's officials from Treasury in there. So we don't have the police coming in and out, but we do have a phone line to Canberra where we can put questions to treasury and that sort of thing.
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Chapter 2: What are the key highlights of the new budget release?
It was a fascinating process of economic management within the team. But also very helpful, I think, as people were trying to make sense of exactly what the documents were saying to make sure we're all on the same page. Because this is quite complicated, isn't it?
Yesterday when I spoke to Patricia Carvellis, when we actually still were in the lockup period just before we were able to communicate with the outside world, obviously we went to the headline, which was about the major changes to the taxation arrangements when it comes to property. This is negative gearing, capital gains tax discount. But also, of course, the trust changes were also fascinating.
That was kind of the headline stuff, which I'm interested in your view on. But I'm also really fascinated about the changes that the government is making to taxation arrangements for businesses. And there was a lot of commentary around how these changes, particularly the capital gains tax discount,
speculation that that would be changed, how it might affect business decisions, particularly amongst startups. Do you want to start with a big picture and then take me through where you really zeroed in on the business changes?
Chapter 3: How does the budget aim to support young Australians?
Yeah, I think as with many budgets we've seen in recent years, budget leaks are very expected. This one was pretty widely leaked, you'd have to say. There wasn't anything that was a total surprise. Obviously, the details around how the grandfathering
worked with things like the negative gearing and CGT discount changes weren't known before the budget, but there was a sense that there would be some sort of grandfathered arrangement in there. So it didn't have that feeling of,
a super surprising budget, but still compared to previous years, recent years, it did feel quite significant and that it actually was taking substantial steps to change things. And as you say, really a lot of the focus has been on the housing impact of those tax changes and how it goes to addressing intergenerational inequality.
And that was obviously the remit of a lot of reporters in the lockup. I was sort of tasked with looking at what else was going on for investors, for business. And yeah, it's been really interesting to see that things like the capital gains tax discount don't just apply to property investment. They obviously apply across asset classes.
So I was able to kind of take that frame to it and delve into what it could mean for other assets that people invest in, mainly shares. And we've been hearing from a lot of people writing into us in recent weeks and also since last night saying, hey, I'm actually a young investor.
I was looking to get into the share market to try and build some wealth because I haven't been able to get into property. And now I'm kind of caught up in this. So Yeah, there definitely are ramifications far beyond just property, which has been grabbing the headlines.
Yeah, you're right. I mean, there were so many leaks ahead of this budget. We basically knew all the headline changes. And yet I did find once I actually looked at it all, I was still shocked by how far the government was going, given the political risks involved. And yes, the government is talking about this as being the most ambitious budget in a couple of decades.
But that is backed up by a lot of experts I spoke to, economists who'd been watching different budgets for a long period of time, said this is the government taking a big swing. We'll see how it plays out when these changes are implemented. There is a lot of political risk here, but they are making substantial changes.
Looking at what changes for business, and it does appear that the government was aware of the criticism of particularly start-ups, that any changes to the capital gains, tax discount, that made it less attractive to invest in high growth stocks, you know, stocks or businesses that you're expecting will grow into the future and therefore you're trying to get that big capital gain at some point.
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Chapter 4: What was the experience of journalists during the budget lock-up?
The capital gains tax discount is changing. But there are all these little gifts to the startup community out there, these incentives to try to offset, I guess, in part, but also to help Australia's startup scene to build big businesses of the future.
Yeah, so in that sense, they were sort of, as you say, potentially taking some things away with one hand and giving with the other. But just on the capital gains tax discount and how it applies to the startup and tech sector, they have essentially been carved out for now.
There was a thing in the budget saying that they acknowledge the unique characteristics of the tech and startup sector and flagged that they will have period of consultation with that sector.
So I think that will kind of keep that sector in a watch and wait mode, that they will have the opportunity to put these criticisms that they'd been making public in recent weeks, you know, through some consultation process and then
that there will be some sort of modified version of this relevant to early-stage start-ups that are obviously looking to make a big capital gain over time by growing their business. And the government is obviously aware of potential criticism around, you know, you're dampening growth, you're potentially –
seeing companies that could have grown in Australia maybe look for more favourable tax jurisdictions overseas. So they've sort of put a pin in that for now and say, we will consult with the sector. And part of that criticism was around employee share schemes. So some of the vocal critics were saying that
By offering employees shares that have the potential to have really high capital growth over a long period, that's a way that startups can attract talent. They don't have the ability in the early days to offer the big salaries and compete with established firms.
if you make employee share schemes less attractive by saying you're going to face a less favourable tax treatment than you would have previously, then that could make it more difficult for start-ups to attract and retain the talent they need to grow.
So we don't exactly know what this is going to end up looking like, but on the CGT part of it at least, it looks like we will get some sort of carve-out or exemption or different tax treatment for that sector. And then as you say, there were these other measures. So one which we spent quite a long time trying to get our heads around in the budget was this loss refundability measure.
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Chapter 5: What are the major changes to taxation arrangements in the budget?
And there was a quote to that effect in the budget about this improving the efficiency of investment. So trying to stop people making investment decisions based on tax treatment and make it more for economic reasons, one of which would be, you know, the inherent value of that investment. So I think that is where we'll see this play out for investors and in the
not just CGT, its changes itself and how they apply to shares. You know, you've also got the negative gearing changes that being scrapped for future investment properties. So I think overall, really the aim of this budget and what it will probably achieve, you know, slowly and incrementally is making property slightly less attractive.
So then we should see people looking to other sorts of investments probably.
Yeah, and that raises the question, a question that we had from an audience member, from Jenny, who asked, she said, in today's discussions on the budget, I'm not hearing anything about the research that's being done. The negative gearing won't actually make much difference to first-home buyers. Am I mistaken?
So I think she's asking about how Treasury's coming up with the modelling to say that these particular measures will or won't have an impact when it comes to first-home buyers. So this is the argument that the changes... to the capital gains tax discount and negative gearing, I assume, because kind of working together, what impact they'll have on first-term buyers.
I mean, the first thing to point out is this is done by Treasury. So there are analysts there who are trying to work out what different moves in policy will mean for the real economy. And the argument that they are making, and as with all modelling, it depends on what your inputs are, It depends on what conditions you put in there, your underlying assumptions.
But the argument from Treasury is that The current settings or previous settings, I guess we're now going to be calling them, effectively subsidized investors to purchase existing homes. And that meant that existing homes particularly, which is the thing that they're changing, the changes will mean that first home buyers aren't facing unfair competition from investors.
And that's why it's good news for first home buyers. But all of these things can be debated. It is in line though, isn't it, with what we'd heard from other think tanks ahead of of this being unveiled, that these type of changes would actually help first-time buyers.
Yeah, so the numbers they've come to through their modelling and have included in the budget paper is seeing prices grow by around 2% less over a couple of years relative to if they hadn't done this policy change with negative gearing and capital gains tax. So I guess, you know, it's not saying house prices are going to drop dramatically. It's kind of saying...
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Chapter 6: How will changes to capital gains tax affect businesses?
And there was also some stats in there around rent. They said Treasury expects an increase of less than $2 a week for households paying the median rent due to these changes.
So about a hundred bucks a year.
Yeah, exactly. So super modest. And again, Grattan's research had suggested it was even smaller than that. So, you know, obviously we can't know whether those figures will end up being correct, but obviously it's based on the assumption that you will see some sort of rotation away from investors and people will be able to perhaps exit the rental market and become owner occupiers of houses.
when they wouldn't have previously had the opportunity.
And that number was, they think, about 75,000 properties effectively will move from being owned by investors to being owned by owner-occupiers. Now, economic modelling is notoriously difficult. We will see how this plays out. We can't control for all variables, particularly at a time like now when there is so much uncertainty about the global economy.
But that is the argument the government is putting forward about why these changes are going to be positive. And speaking of how hard it is to model economically, one of the kind of side stories I thought was interesting in this budget paper was the collapse of the tobacco excise. So we know that they had a fuel excise cut that was on purpose because prices were going up.
But we are seeing the excise take, the tax take from tobacco, from cigarettes, collapsing. And that is primarily because we've seen such a huge rise in the purchasing of illegal cigarettes, black market cigarettes, which don't have the tax being added to them.
And not only has there been a massive hit to revenue in this particular financial year collapsing, but actually it is going to continue to fall in future. Now, obviously there's part of the reason the excise was as high as it was, was to try to incentivise people to stop smoking. But that is not the reason why we're seeing the collapse in the way we are, or it isn't the big reason.
So they're now expecting by 2029, the tobacco excise will only generate about $2.1 billion. That's about 75% less than the $7.8 billion it collected in 24-25. This is actually creating a major black hole for the government.
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