Australia’s proposed CGT tax changes may do more than raise tax from investors.
They may damage investment confidence.
Former NSW Parliamentary Budget Office chief economist Derek Francis says Treasury has materially underestimated the tax Australians will pay under the Albanese government’s proposed capital gains tax overhaul.
Francis made the warning on The Karl Stefanovic Show, where he said Treasury’s modelling does not reflect how real Australians invest.
He said many investors hold several assets, not one perfect asset that always beats inflation.
That matters because the government wants to replace the 50% CGT discount with inflation-based indexation and a 30% minimum tax on capital gains from July 1, 2027.
CGT Tax Changes Under Senate Review
The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and related bill are now under Senate committee review.
The bills would replace the 50% capital gains tax discount for individuals, trusts and partnerships with cost-base indexation and a 30% minimum tax rate on capital gains accruing from July 1, 2027.
The package would also limit negative gearing for residential property investments to new builds from July 1, 2027.
Treasury says the new CGT arrangements mean investors will pay tax only on real capital gains after inflation.
Francis says that statement misses a practical problem.
Real portfolios do not all rise neatly above inflation.
Some assets rise strongly. Others fall, stagnate or fail to beat inflation.
Francis said the proposed system taxes the winners but does not properly compensate investors for real losses on the losers.
“They tax your winners really highly but they don’t compensate you for your losers,” Francis said.
He said his modelling suggests the government could collect 40% to 50% more capital gains tax than Treasury has estimated.
Young Australians Could Lose Compounding
Francis said young Australians may suffer the most.
Younger investors often need growth assets.
They may buy shares, small caps, crypto or other volatile assets because they need capital growth to build wealth and save a home deposit.
Francis said those investors could face high effective tax rates if one asset performs strongly while others do little.
He gave the example of a young investor with $50,000 in the market.
Under the current system, Francis said, that investor could turn the money into about $150,000 in real terms over 20 years, assuming a 10% return.
Under the proposed system, he said, the same investor could end with about $110,000.
He also said it could take a young investor 16 years, rather than 12 years, to turn $50,000 into $100,000.
That four-year delay matters.
For many young Australians, the first major investment goal is not retirement.
It is a home deposit.
Shares, Crypto and Small Caps
The CGT tax changes would reach beyond investment properties.
Capital gains tax applies to many assets, including shares, units in trusts, business assets, foreign currency and cryptocurrency.
That gives the reform a much wider impact than a housing-only debate suggests.
Francis said the proposed rules could discourage direct investment in shares and push Australians toward superannuation, managed funds or owner-occupied housing.
He said small-cap investing may face special risk because small companies and junior explorers often depend on investors willing to accept volatility.
In those markets, one large winner may offset several flat or failed investments.
Francis said the proposed tax system punishes that volatility.
He said it could reshape the way Australians invest.
Investment Confidence at Risk
The larger danger may not be the tax bill alone.
It may be the loss of confidence.
Francis said the proposed CGT tax changes have changed the rules after Australians made long-term investment decisions under the existing system.
That matters because investors do not only calculate today’s tax rate.
They also ask whether the rules will stay stable long enough to justify taking risk.
If investors believe Canberra can rewrite the tax treatment of shares, crypto, small companies, trusts and other assets without proper modelling, many may stop investing directly.
Others may shift money into owner-occupied housing, superannuation or managed funds.
That would not necessarily make housing more affordable.
It could push more capital into existing homes, renovations and tax-favoured structures, while starving smaller listed companies and early-stage businesses of retail investment.
If small companies struggle to raise capital, some grow more slowly, some stop hiring, and some never recover from the next shock.
That is the part tax modelling often misses.
Business and investment gains do not arrive in neat annual patterns.
Many investors and business owners take losses for years before one successful asset, product or recovery period produces a gain.
If the tax system punishes that gain without recognising the earlier risk and losses, it does not merely raise revenue.
It changes behaviour.
It tells Australians that risk-taking is for institutions, funds and protected structures, not ordinary investors, small business owners or young people trying to build wealth.
Treasury Model Challenged
Francis said Treasury’s model assumes an investor owns one asset that always beats inflation.
He said that assumption fails when applied to a real portfolio.
“In practice people own a range of shares,” he said.
He said many investors hold 10 or 20 shares, and a significant part of a portfolio may underperform inflation.
That creates the central dispute.
The government says investors will pay tax only on real gains.
Francis says the proposed system can tax real portfolio gains at far higher effective rates because it treats winners and underperformers differently.
He said the mistake “cascades through every single investment decision.”
CPA Australia Raises Separate Concerns
CPA Australia has also warned the Senate inquiry that the bill should not proceed in its current form.
The accounting body said the legislation needs more public consultation and better analysis before Parliament passes it.
It also called for more distributional modelling so lawmakers can see which taxpayers face higher tax under the 30% minimum rate.
That concern goes to the heart of the political argument.
The government has framed the CGT tax changes as fairer tax reform.
Critics say the reform may punish the very Australians it claims to help.
Young Australians, small investors, crypto holders, family trust beneficiaries, small businesses and farmers may not fit Treasury’s clean model.
Their financial lives are often complicated.
They involve assets, debt, family structures, uneven income, loss years and long-term risk.
Tax policy built on simplified models can punish people whose financial lives are not simple.
Senate Must Test The Assumptions
The Senate Economics Legislation Committee is now reviewing the bills.
The committee report is due later this month.
That gives senators a direct question to answer.
Has Treasury modelled real investors, or has it modelled a simplified version of them?
Francis says the proposed CGT tax changes may make Australia less attractive for direct investment and harder for young Australians to build wealth.
He also says the policy could trigger a wider loss of investment confidence.
That warning turns a technical tax debate into a national economic question.
Can Australians still invest with confidence if the rules change after they take the risk?
