"The changes to capital gains tax reforms announced by the Treasurer today lessen, but don't eliminate, the harm which will be done to investment and the economy," said Innes Willox, Chief Executive of the national employer association, Australian Industry Group.
"The package of CGT reforms before the Parliament will raise our taxes on capital gains to some of the highest levels in the OECD, while creating perverse incentives that punish investment and innovation. Today's changes exempt some small businesses from these problems but fail to acknowledge their broader impacts on business and the economy.
"Following extensive consultation with business, we suggested to government a five-point plan for how to ameliorate the many faults with the CGT proposal. We commend the Government for today adopting one of our recommendations – raising the small business threshold for the 50% active asset CGT reduction from $2 million to $10 million.
"This more realistically recognises the scale of small business in today's economy, and with this threshold not indexed to inflation for two decades is well overdue.
"The introduction of a new innovative business tax concession may also help address some of the adverse impacts upon startups.
"However, most of the problems remain. The reforms retrospectively apply higher tax rates to existing investments, deter risk-taking through asymmetric treatment of capital gains and losses, impose a distortive minimum CGT rate that arbitrarily punishes some taxpayers, and fail to implement income averaging that recognises business growth is achieved over many years.
"By the Government's own numbers, the changes announced today will exempt an additional 8% of Australian businesses from the pernicious effects of the CGT reforms. If it now recognises the reforms will harm investment in small businesses, then it surely should recognise they will harm it in medium and large businesses as well.
"Australia needs a tax system that will drive investment and innovation in businesses of all sizes, shapes and sectors. Exempting some small businesses and startups from a harmful tax reform does not transform it into a beneficial one," Mr Willox said.
