The failure of Jim Chalmers

Jim Chalmers has a big job which he’s not executing very well – reduce government expenditure to align with income, repay debt, and increase economic growth.

Why he bothered with ‘reforming’ the Capital Gains Tax and Negative Gearing regimes is a mystery as the measures contribute only marginally to his main job while breaking an election promise completely destroying Labor’s credibility.

A good rule in financial repair is to go where the big wins are, and not to waste time on marginal gains. But the changes to CGT and NG will yield very little revenue, at the same time they decrease the efficiency of the economy and the housing market making it tougher for renters, and no easier for home buyers.

Jim’s minimum KPI should be tied to getting spending back in line with income. The Commonwealth currently spends around 26.8 per cent of GDP but raises only 25.8 per cent in total with taxes contributing 23.7 per cent of GDP.

The long-term average for Commonwealth government income since 1975 (when the adults got back in control after Whitlam) has been of the order of 24 per cent of GDP, which gives him a 3 per cent of GDP savings target to meet – or somewhere around $95 billion. (And I mean genuine savings, not describing a tax increase as a saving.)

How much will the combined changes bring in? None for the next two years, and in 2028-29 only $1.35 billion, which is 1.42 per cent of the treasurer’s KPI requirement. The Treasurer and the Prime Minister have torched their credibility over rats and mice.

The fact that the Treasury secretary supports this because ‘the tax has to come from somewhere’ demonstrates the descent into midwittery of that office since the days of John Stone.

Why are they chasing the wrong targets? It lies in politics and ideology, not economics and the days of student union debates where it was assumed the rich were always getting away with not paying their fair share. This has informed a progressive drumbeat for decades calling for government to abolish negative gearing and tax capital gains as income.

The Greens pushed these policies, along with rent controls, at the last election, and while the Liberal Party is currently in an existential fight with One Nation, Labor is less visibly wrestling with the Greens.

Current policy marries Chalmers’ ideological predilections with the tactical political exigencies of the moment and can be sold to the faithful as making the rich ‘pay their fair share’ and making housing ‘more affordable’.

The problem with both those propositions is that they aren’t true. The capital gains taxes might have been aimed at the housing sector, but it’s captured all capital gains on all asset classes. That includes those earned by investors in their teens, twenties, and thirties saving for their first home.

Unlike their parents they don’t put their savings into bank accounts with their derisory rates of interest, but into cryptos and ETFs. Now they find, despite earning less than the average wage, they will pay a minimum tax of 30 per cent on their investments when they try to realise them for that home deposit.