Nothing highlights the rushed, chaotic nature of this federal budget more than the last-minute reversal of legislation that would have financially ruined grieving widows. The legislative process has been so sloppy that a Labor-Left government committed to a goal of social justice keeps fumbling the ball in ways that disproportionately affect women.
Detail is boring and politics is shrill, but it’s worth understanding what the government almost did.
In the budget, certain negative gearing and CGT benefits will be retained by existing asset owners, a so-called “Grandfathering” clause. The government has decided that an asset jointly owned by spouses would have its grandfathered tax benefits stripped when one owner dies or if the couple divorces.
Beyond the political absurdity of this measure, how did no one in government realise that policy targeting grieving, older widows is deeply unfair, economically unnecessary, ideologically nasty, and exceptionally callous? Whilst the legislation would have applied equally, women would have had it much worse because in the developed world, women outlive men.
According to census data from 2021, there are roughly one million widowed Australians, and widows outnumber widowers by four to one. For someone with even a passing interest in demographics, it is quickly obvious that such policy would impact women four times as often as men. Yet, a frantic Treasurer was about to ensure that newly widowed women with jointly owned investments would have had their financial security instantly and severely worsened.
This disaster was also slated to apply in divorce, and again it would have excessively hurt women. In a domestic partnership, the highest-value investments are often real estate and when heterosexual relationships end, these more frequently divide in favour of the ex-wife. The instant removal of a negative gearing tax benefit may well mean the loan on that woman’s rental property could no longer be serviced. Jim Chalmers was an inch away from creating policy likely to push a widow or divorcee into the forced sale of her assets.
Whilst the government either missed these disasters or didn’t care, thankfully several astute journalists as well as some crossbenchers made a fuss. And as is not standard practice, by morning the Prime Minister had reversed course. Changing one’s mind when the facts change is admirable, particularly in a politician. But it would have been far more admirable to consult properly and honestly on such dramatic legislation, and avoid this national mess.
There is one specific area in which women still face the potential risk of a more adverse outcome than their male counterparts.
To go back a step, for several weeks pundits have highlighted that changes to capital gains tax (CGT) and negative gearing would prevent younger Australians from accessing wealth creation opportunities that enriched their older compatriots. To compound this inequality, wealthy Australians will retain their benefits. These and other proposed changes created a political backlash sufficiently large for the government to acquiesce to some so-called carve-outs.
Even with these carve-outs, the wealthy and entrepreneurial have been dealt a harsh blow. But ironically, one of the carve-outs has exacerbated a gender inequality problem.
The government now plans to offer preferential CGT treatment to businesses that fit an “innovation” definition. Whilst the details have not been released, there is precedent in a 2016 concession that established the early stage innovation company (ESIC). It would be logical for the government to utilise this existing classification mechanism for “innovation”. This concession explicitly concerns startups that receive external funding, and the hurdles are skewed towards addressing that case.
Unfortunately, there is a long and consistent body of evidence demonstrating that women are materially underrepresented as the founders of externally funded technology startups. Whilst the industry has been trying to increase the representation of female founders amongst this funded ecosystem, there are genuine structural obstacles. The challenges are real and ingrained, and they will not be overcome quickly.
Thus, if the “innovation” carve-out for preferential tax treatment is biased towards the funded sub-sector in which women are historically underrepresented, it will financially disadvantage women. And often younger women starting their first business.
This outcome is not a fait accompli, but the risk is real and demands a blank-page assessment. There is danger in rushed, lazy, or sloppy categorisation, and to date this process has been light on precision.
With each passing day, the unintended consequences of this budget appear worse. No doubt, there are more landmines waiting to be discovered, or created as the detail is produced. It is yet another example of what happens when governments rush dramatic, life-altering legislation without proper engagement.
One can only hope this government finds the courage to pause these changes until a proper and transparent consultation has been undertaken. If Albanese does finally take the high road, it is likely a new Treasurer will join him on the journey.
Thanks for sharing this latest mess Adir - a dreadful government appears to keep getting worse.