Curing Affluenza? A Critique of Recent Changes to the Taxation of Capital Gains in Australia

Abstract

It has long been accepted that taxing consumption, property and labour can be much more efficient than taxing more mobile factors such as capital. As a result, revenue authorities have increasingly built significant parts of their tax systems upon such tax bases, and often tended to downplay the more difficult area of taxing gains from capital. It is therefore somewhat surprising to find that the Capital Gains Tax (“CGT”) is, after the virtually ubiquitous Value Added Tax (or Goods and Services Tax as it has become known in Australasia and Canada), the tax that has been most widely introduced in developed economies in recent decades. Australia, in 1985, was one of the last of the Organisation for Economic Development and Co-operation (“OECD”) countries to introduce a CGT regime. Generally, arguments about the inequity of not taxing capital gains have outweighed the potential inefficiencies and complexities that inevitably accompany the introduction of such a tax.

Keywords: tax bases, capital gains tax, Value added tax, GST, taxation