So says Federal Health Minister Mark Butler, commenting on Budget speculation over the past week.
He is correct. Many taxpayers will have read the plethora of Budget leaks and interviews to try to decipher the direction of Australia's tax policy following tonight's Federal Budget.
The tax landscape for capital gains, negative gearing and trusts seems likely to change substantially.
It's hard to see how some of the changes are not inflationary at a time when the Reserve Bank is raising interest rates in an attempt to quell inflation.
If, as is speculated, existing negative gearing arrangements are preserved, the Government is perhaps trying to limit landlords raising rents to compensate for the loss of tax benefits. Restricting negative gearing to new homes will skew investment towards this area. Which is what the Government wants.
If the Government eliminated all existing negative gearing arrangements, it would likely see a sharp decline in rental properties in inner city areas as cash-strapped investors sell to home occupiers, forcing existing renters to the outer city suburbs. And a sharp rise in rents by those landlords who decide to stay, aided by tenant demand for the reduced rental stock.
The proposed changes to capital gains tax may result in Australia having one of the world's highest capital gains tax regimes. As one commentator wrote, it will result in people ploughing their money into the CGT-free owner-occupied home, forcing up property prices. As a tax free option, this seems likely. Preserving the CGT status of existing investments may temper this.
Any changes to the taxation of trusts are likely to be inflationary as landlords using these structures seek to raise rents to remain tax neutral. Trusts are also used by many contractors, such as plumbers and electricians. (The contractor's spouse often does the business's accounts without drawing a salary, with the trust distributions allowing both to claim the tax free threshold.) Expect contractors to either restructure or seek to raise rates in an attempt to remain tax neutral.
With some Federal politicians using up to 17 trusts, it's not surprising that the Government wants to act. Contractors (and others) may just be caught in the crossfire.
The devil will be in the details but the Government may follow the company tax model for trusts, adopting a base rate entity approach, or some other form of exemption for small businesses (similar to farm exemptions).
All will be revealed when the Federal Budget is brought down this evening although the full impact of the tax changes may be several years away.
May 2026
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