Former Prime Minister Paul Keating has weighed into the capital gains tax debate, telling the current Labor government the proposed changes are "so marginal that no entrepreneurial initiative is likely to be thwarted."
Keating warns against carve-outs that would hurt the economy while doing little to protect legitimate business. When the architect of Australia's 1980s-90s economic liberalization says tax changes are sensible, that carries weight.
In an exclusive interview with The Guardian, Keating backed Labor's budget proposal to reduce the capital gains tax discount from 50% to 30% for assets held longer than 12 months.
The reform would bring Australia more in line with international norms while raising an estimated $12 billion over four years. But business groups and some crossbench senators are pushing for exemptions - particularly for small business owners and farmers.
Keating isn't having it. "The changes are modest," he said. "Anyone claiming this will kill entrepreneurship is either misinformed or acting in bad faith. We're talking about a reduction in a discount, not confiscatory taxation."
Mate, when Keating speaks on economic policy, Australia listens. This is the bloke who floated the dollar, deregulated the financial sector, and opened Australia to international competition. He's not exactly a socialist firebrand.
His intervention gives political cover to Labor on what's become a contentious reform. Treasurer Jim Chalmers has faced pressure from business lobbies and the Greens simultaneously - business wants exemptions, the Greens want higher rates.
Keating's message is simple: hold firm. "If you start carving out exceptions for every interest group with a good story, you'll end up with Swiss cheese policy that raises no revenue and creates new distortions," he said.
The capital gains tax discount was introduced by the Howard government in 1999, replacing an inflation-adjusted system. The 50% discount was always generous by international standards - the United States, United Kingdom, and most European nations tax capital gains at higher effective rates.
Australia's current system particularly benefits property investors, who can reduce their tax liability by half simply by holding an asset for a year. That's contributed to distortions in the housing market, where investment properties compete with owner-occupiers, driving up prices.
Labor's proposed 30% discount is still generous - it means investors pay less tax on capital gains than workers pay on wages. But it's a step toward rebalancing the tax system away from favoring passive wealth accumulation over earned income.
The political challenge is that capital gains tax reform affects influential constituencies - property investors, small business owners, farmers, and retirees with share portfolios. Each group has legitimate concerns, but also self-interest in preserving favorable treatment.
Keating's advice is to ignore the special pleading. "Every tax change creates winners and losers," he said. "The question is whether the overall reform serves the national interest. In this case, it does."
The Greens want Labor to go further, pushing for a 40% discount or eliminating the discount entirely. Keating dismissed that as "political grandstanding." "Labor's proposal is calibrated, evidence-based, and implementable. Perfect is the enemy of good."
Mate, this is Keating at his best - blunt, economically literate, and impatient with both business lobbying and left-wing maximalism. His message to Labor: you've got the policy right, now have the courage to implement it.
The Senate vote is expected within weeks. With Keating's endorsement, Labor has the political ammunition to resist pressure for carve-outs. Whether they use it is another question.
There's a reason Keating is still the most consequential economic reformer in Australia's modern history. He didn't get there by backing down when interest groups complained. Labor would do well to remember that.
