Dim Jim and His Bad Budget

A disaster for young Australians

It’s not overstating things to describe Jim Chalmers as the most rotten Treasurer of our lifetimes. And this Government as the most duplicitous and inept.

But while many commentators have pointed out that the Prime Minister repeatedly promised that the Government wouldn’t change the tax rates on capital gains or remove negative gearing, that lie was a sideshow. Election fraud would be tolerable if the result was positive for society.

Alas.

The great disaster of Albo’s great big lie is that a budget ostensibly pitched at helping young people is instead placing a dagger through their financial hearts.

Dagger #1 – the debt time bomb

If the Federal Government was genuinely interested in fixing intergenerational equity, the first thing they’d be doing is running genuine budget surpluses (Javier Milei in Argentina proved it was not a difficult task). A deficit is paid three ways – through inflation, higher future taxes or default. In all cases, that cost is being borne by people aged under forty. The Federal Government already owes a trillion dollars – while this is relatively low compared to Japan or the US, it is historically high for Australia, which has benefited from a generational resources boom. Chalmers is increasing this debt by 25% in the four years alone.

A better way to explain this debt is the one trillion current amount is equal to $66,000 for every taxpayer (there are around 15 million). The Government is adding another $20,000 or so per taxpayer. This money won’t be repaid by Boomers (who will be dead when the interest bill becomes really meaningful), but by young people through higher taxes or higher prices on everything.

Dagger #2 – negative gearing

I’ve always hated negative gearing – while it is available for all asset classes, since the GFC and spate of margin calls, it has largely been confined to residential property. This has led to Australia having among the highest property costs in the world (relative to income). The only more expensive countries are tax havens like Monaco or Hong Kong (where lower tax rates are capitalised in housing costs). We have the bizarre combination of the world’s highest taxes and the world’s most expensive property.

So removing negative gearing is on the face of it, a decent idea.

But the Government isn’t doing this at all.

It’s only removing negative gearing for young people. If you’re already negatively gearing a property you can continue to minimise your tax, no problem. Who will benefit? Yep, older and richer people who already own investment property. Chalmers talks a big game but in reality, he was too gutless to really remove negative gearing and has left a reverse Robin Hood monstrosity.

Dagger #3 – the death of new business

In February, the Prime Minister floated what appeared to be a controversial idea – removing the 50% capital gains tax discount for residential property. Perhaps surprisingly, the idea received a very positive reaction from all sides of politics. Even the Financial Review supported the move. Boomers who have gotten rich off residential property since 1997 understand the need for generational fairness and paying their fair share.

The response led to some sort of political Dutch courage. Albo and Jim Chalmers, the arts graduate, dusted off Bill Shorten’s failed 2019 CGT policy and announced, days before the budget, that the CGT cut will apply not only to residential property, but also to other asset classes like shares and small business. It appears this policy went from concept to announcement in three weeks.

It quickly became clear that the economically illiterate Chalmers had no idea of the implications of this rushed policy.

Australian governments have a terrible history of policy made on the run – the $60b NBN fiasco was written on a napkin by the widely loathed Kevin Rudd. The $100 billion SRL was concocted by Luke “Dick Pic” Sayers and Dan Andrews for the dual purpose of increasing the wealth of CFMEU officials who bankroll Victoria’s corrupt Government and fees for Luke’s dud consultancy business. The Coalition’s rushed Job Keeper program cost $70b and gave millions of dollars to profitable firms because Josh and Scott forgot to add a clawback.

It appears lessons haven’t been learned.

The CGT removal means Australia will become the highest taxing region for capital in the world. Higher than the practically socialist Scandinavian petro states and higher than bougie France.

Every founder, large and small, will reconsider starting their business. When a startup hits product market fit, they will get a low valuation and quickly redomicile in New Zealand or Singapore (with their zero tax rates).

And of course, this will only impact younger founders. If you’ve already got a business, you get to keep the discount on your capital as at 30 June 2027. If you’re a boomer with millions in super, you will continue to pay a meagre 10% or 15% tax rate. If you’re a 21 year old barista starting your own café – that will be 47% you’ll be paying to the rapacious Federal Government so it can pay for Annika Wells’ $70,000 first class fare to New York or Victoria’s hated Suburban Rail Loop.

And for all this destruction what do we get? A lousy few billion in annual revenue – less than half the amount we’re spending on mildly autistic kids’ $36,000 annual payment.

We rarely get good governments in Australia. There haven’t been many Bob Hawkes and Paul Keatings (or early years John Howards). But we’ve largely been lucky enough to avoid total disasters like Jim and Albo.

Alas, we’ve reached our Eva Perone moment.