So in studio with me is Peta Tilse. Peta Tilse is Head of Funds Management at NatGen.
Peta, thanks for coming in.
Thank you, Steve.
Also with us is Tracy Norris. Tracy Norris is with Picture Partners. Tracy, thanks for joining me as well.
Thank you, Steve.
How would you describe your work and role at Picture Partners, first of all?
I am a partner in private practice, predominantly in superannuation, advisory and private clients.
So taxation, SMSF, superannuation, advising around retirements and wealth accumulation.
Thank goodness you’re here. Peta, how would you describe your role at NatGen?
Definitely not that. So it’s funds management. So I deal with raising capital essentially for investments in property.
So you’ve got a good lens of people here.
I’m absolutely delighted. So I’m going to play you 20 seconds of my interview with Dr. Rand Lowe from Bond University before.
He described this as a Robin Hood budget to me.
I’m only going to play you an excerpt because he was kind of shocked at the triple hit baby boomers or older people have just received.
Let me play this.
I’m honestly surprised that he’s taken a huge hit three times in a row at Where the Wealthy in Australia offer and store their wealth,
which is real estate, superannuation and also discretionary trust.
So he is right in terms of it is ambitious because it’s really hitting the wealthy where I would say it hurts and three times in a row.
Three times in a row. Now I’m not sure you guys see it as ambitious.
How would you describe what you’ve been finding out after going through the budget papers, Peta Tilse?
I wouldn’t characterize it as Robin Hood. I’d be characterizing it as robbing Peta, not even to pay Paul, just robbing Peta.
Really? Okay. Tracy Norris, what about yourself? How would you describe it?
Look, the budget’s interesting. The fact that superannuation has been carved out and it doesn’t get hit through these CGT reforms is quite
contradictory to the fact we’ve just gone through four years of superannuation tax changes where there seemed to be this impetus where they
wanted us to take money out of super because it was too concessionally taxed.
But then if you move it out, you’re going to get taxed more under this budget.
So then everyone wants to keep it back where it originally started. So I’m a bit confused really.
The body, the spokesbody for superannuation funds has welcomed their decision to exempt superannuation
investors from changes to the capital gains tax, saying that the budget’s a win for 1.9 million Australians
with a super account who value stability in super tax settings.
Yeah, look, it is a long-term hold. So stability is really key if you’re committing to putting some money away for 40 years.
The constant changes get a little bit tiring. So yeah, it’s nice that there’s no further changes on top of what we’ve been dealing with.
But some of those other CGT changes for mum and dad investors are a little tough.
What are they? Roller, give me an education please, Tracy Norris.
A quick snapshot.
Thank you.
So we’re removing the 50% discount is apparently what we’re going to do.
And we’re going to go back to the 80s and we’re going to index capital gains.
So you only pay tax on the amount of the gain that isn’t represented by CPI inflation.
That can be quite punitive when you’ve got high growth assets that you’ve taken the risk on
and invested for a longer term because you took the chance that there would be growth, but you weren’t certain.
And when you have a capital gain, it’s really lumpy. It occurs in one year.
So where you’ve got a minimum tax then that they want to impose on capital gains of 30%, not a maximum tax of 30%,
I don’t really see that it’s about equity. It’s just a bit of a cash grab.
Because if it was a maximum 30%, you could kind of live with that a little and say, OK, well, that’s kind of averaging it over your hold.
Not quite as bad. So that’s tough.
And then pre-CGT assets, ouch, they’ll be in the scope of the net.
What sort of things would they be?
So if you’ve got property that you’ve held since before 1985, so long term hold,
previously those assets were forever exempt from capital gains tax.
But now from 1 July 27, it’s proposed that they would also come into the net of capital gains tax.
We don’t exactly know how they would deal with that pre-CGT proportion and the post.
But that’ll be the detail that we have to wait and see.
So what does someone who’s managing their own super, their own retirement, need to consider?
Well, we’ve put your point that this is not financial advice. You need to get your own financial advice.
But what do you think, as an expert in this area, think they need to consider, Tracy Norris?
Look at or examine more closely.
Look at closely. Well, we all know the power of compounding if you’re looking at investing, right?
And that’s why we invest, is we want to take some capital growth. We want some yield.
And together it adds together nicely to increase our self-sufficiency and provide for us and others that we may love
for opportunities that we want to have.
The people who are building for the future.
Yeah. But when you’re looking at a super fund, that looks to be potentially the best place to have capital growth
under these new reforms rather than holding it personally.
So what do we do? Do we make the decision that we invest all our eggs in that super basket
so that it has a better compounding effect by lower tax leakage,
which means you’re locking your money up and your circumstances can’t change?
Or do we accept that as individual investors we pay more tax,
which means our compounding won’t happen as quickly and you’ve got to put more away to get the same outcome?
I’ll get you to put your headphones on when you get a moment.
I’ve got a listener who wants to get some clarity around something.
Peta Tilse, what stands out to you, Peta Tilse, specifically around investing in property?
So when I was looking at this budget, you come from the lens of what are you trying to achieve?
Intergenerational fairness is what the Treasurer says.
So I had a son come home last night and I said,
oh well guess what, you’re going to be paying at least 30% tax now on your crypto, on your shares.
Don’t tell young people that. They’re going to be paying 30% on their crypto.
But that’s the thing. I mean he didn’t even know about the budget or whatever
and the point is you’ve got to be aware of these things.
And he said, well how did that happen? So that’s bad.
Anyway, I digress. But from a property perspective,
I guess what the federal government was trying to achieve is this fairness and getting people into houses.
The problem is demand is high and supply is low.
And I was just talking to Tracy earlier and just saying even here at South Brisbane,
back in 2018, banks would not lend to people wanting to buy apartments here because there was such an oversupply.
So what has happened between 2018 to today? It’s population growth.
Massive.
And where has that come from? That’s come from mostly net overseas migration
and people on various types of visas, etc.
So really, if we need to just catch our breaths rather than just go running in and taxing everybody
right across the board but pretending it’s a Robin Hood moment,
we really need to dampen that demand.
Dampen demand and increase supply of houses?
Yeah, which is economics 101.
And does this budget do that?
No.
My guests are Peta Tilse, head of funds management at NatGen, and Tracy Norris from Picture Partners.
Peta, I’m going to come back to you specifically in a moment about the $2 billion that they said was in there to help infrastructure.
Tracy, Gunta from Samson Vale, you have a question, you want to get clarity on something. Gunta.
Yes, Steve, thank you for taking my call. I’d just like to know if the CGT tax changes others, grandfathered?
Grandfathered because I looked on the internet, so I’m saying 21st July 2027.
Up to then it’s the 50% after that, it’s the CPI. I’m confused.
You can’t work out whether CGT is grandfathered or not?
Yeah.
Okay. Tracy, can you help clarify that?
I can. So your capital gains between now and 30 June 2027, you can still apply the discount.
So you will get that grandfathering if you are selling assets between now and then.
But gains that are happening after 1 July 2027, we’re going to be looking at new rules potentially.
Does that clarify at least for you, Gunta?
No, no, no, actually. So if I bought a property say in 2013 and sell it in 2030, how would the gains be calculated or the tax on the gains?
Yeah, okay. So I think we’re looking at a blended rule then, Gunta, which means that it’s not addressing their…
They’ve got to reform reducing regulatory burden and simplifying the tax system. I don’t think that’s achieved.
Right.
Because we’re going to have a blended calculation, which means we think that there will be an element of discount you can apply to some of that gain,
but then you may have indexation that will apply to the latter part of your gain, whether that’s pro-rata days or whether it’s a market value approach.
We’re not entirely certain until we get the detail.
That’s not just Gunta that’s not clear.
No, unfortunately.
So Gunta, by the sounds of it, you need to get your own specific advice. You need to sit down with your own advisor and work that out.
So Gunta, thanks very much for your call. 1300 222612 is the phone number.
Although we stress you need to get your own specific advice for your own specific circumstances.
My guess, although they’re experts and professionals, they’re not giving personalized advice. They’re just giving their overview of the budget.
Peta from NatGen. So $2 billion in this budget to supposedly speed up housing, to solve this problem of supply, to help with sort of infrastructure around housing.
You’re skeptical that it’s going to achieve anything. Tell me why.
Well, $2 billion, it’s going to be spent over 10 years.
So that’s $200 million a year. That’s not a lot if you’re really being ambitious and wanting to push this sort of forward and quickly.
Exactly. Putting that in context, we spend annually roughly on Medicare about $35 billion per annum, NDIS $55 billion per annum, and the Australian debt we pay about $30 billion per annum.
So a $2 billion program over 10 years is not probably a lot for the whole of Australia to be tapping into, to be freeing up all this land.
All right. So I could break it down. So Senator Murray Watt said there’s $500 million over 10 years for reforms to our national environment laws, which will help deliver faster approvals for housing, energy and minerals projects.
He then says 105.9 over four years to provide better access to information and improve the user experience for proponents through the use of AI and better access to environmental data.
Well, we saw what happened with the BOM website, didn’t we? So let’s see how this plays out.
Bureau of Meteorology website. I don’t think we’ve got to the bottom of that entirely yet.
$70 million over four years to fast track approvals with states and territories, including priority areas like housing, energy and critical minerals.
This will include establishing bilateral agreements and delivering landscape scale approaches through strategic assessments and bio-regional plans to balance development and environmental protection.
Can you interpret what that means for me? No, you can’t either. Okay. All right. I could go on, but this was what made up the $2 billion, apparently.
Yeah. And that’s why it’s I mean, it is a very complex area. And that’s why. So to build a two bedroom apartment and one of these buildings around us here at South Brisbane, right?
Each one of those apartments, I think we’ve spoken about this before, costs in these days, $1.5 million to make.
Minimum. Minimum. Minimum. Yes. So they’re not going to be selling them for $800,000.
They’re going to be selling them for greater than one and a half million dollars per apartment.
So that’s not affordable for a lot of people that are locked out at the moment of the housing market.
That’s Peta Tilse, head of funds management at NatGen. Let me go back to Tracy Norris from Pitcher Partners.
Tracy, amongst the discussion groups around investors, hedge fund people and the like, the talk is now because of the change in capital gains tax.
And because capital is global, that now the incentive is actually to get your money here and not invest it in Australia and send it overseas.
Can you speak to that at all? Yeah, sure.
I mean, there’s a lot of thought around what yield will investors be chasing now, because if you’re taxing gains more highly, what does that look like from a return point?
And for those in Australia, we have tax on capital gain on our worldwide assets.
So even if we invest overseas, unfortunately, that’s still captured in the net of making good income here in Australia.
So if you have a gain on a foreign share or if you have a gain on foreign investment, that still will be captured here as an Australian tax investor, unfortunately.
Peta, can I come to you with a question from a listener, Anne, who says an existing investor, long term landlord to a string of tenants, some good, some bad.
She says, I think I’ll be worse off unless I sell before the 1st of July next year.
And that’s what Tracy was sort of talking about before about that capital gains discount.
That’s what they’re talking about, changing it as of July next year.
Right.
So we’ll still be, from what was said in the budget, we’ll still be under the existing arrangement up until then.
And then we kick over to that inflation adjusted capital gains tax treatment.
So Anne’s right.
Yeah.
And particularly as a landlord too, Steve, because the negative gearing, it will be grandfathered for those investments that you’re in now.
But if you’re planning on entering new properties, the negative gearing is going to close out except for new builds.
Starting today, I think, isn’t it?
Yeah, since budget announcements.
Since last night, since 7.30 last night.
Yeah.
All right.
Joel from Brisbane has a question.
Could we explain how removing negative gearing will help first home buyers?
Wouldn’t it be better to remove capital gains, asked Joel.
Can you speak to that at all?
Oh, a little.
Peta’s probably done a lot more research on that.
Peta, do you want to look at that?
Well, I guess I’d probably comment.
Look, back in 1985, I think I was 11, so I wasn’t aware of this.
But apparently Paul Keating in 1985 did a similar move.
And the unintended consequence of that was 1% vacancy rates in Sydney and Perth.
Yep.
And then in 1987, I believe it got wound back.
So it’ll be interesting to see how this plays out in terms of the tinkering with negative gearing.
That’s really not clear.
It’s not clear the federal government’s going to achieve any of what they’re claiming.
No, that’s right.
And people have losses in property, but they’re willing to withstand that to get that sort of capital gain at the end of the day.
Right.
And a lot of Australians invest in property because that’s all they know.
They didn’t have access to shares back in the day.
You know?
Yeah.
They were literally, oh, there’s a house down the street and, oh, well, I know that.
It was a simple investment for them.
They understood it.
Yeah, correct.
Okay.
Tracey, Mary of New Farm asked, could I ask, if you could help, what would be the impact of tax changes on share investments?
Is there anything you can say?
Yeah, so with the share investments, you can still negative gear those.
So if you want to take a margin loan out on your shares, you know, that’s still allowed.
That’s okay.
Wow.
Just not property.
We’re protecting an asset class, but we can have a margin loan over our shares.
But the capital gains laws will also apply to shareholdings.
So I was looking at this last night with respect to my sons as well, who I tipped them into Commonwealth Bank shares when they were young with birthday monies and said, here, you need to start saving.
This is what shares look like.
And you can go visit the bank and, you know, be an owner.
But anyway, they’ve got some CBA shares, which I also put them into dividend reinvestment plans.
Bill Hardley now, when you think about, okay, all of those dividends are calculating the capital gain when their index will be painful.
But anyway, what it looks like is the CPI growth since they’ve had these shares compared to the discount, the capital gains tax is a little bit offensive for them.
For young men, they don’t have a significant marginal tax rate.
Yeah.
And under the new rules, they would have a minimum of 30 percent tax that have to pay on a capital gain.
So it’s like, how do they actually then save enough to create a housing deposit?
This was their way they were saving for a housing deposit.
Yes.
Because house prices aren’t coming down.
Yeah.
So, Mary, I think the issue around shareholding is that it’s more liquid.
It’s going to be easy to divest out of and you can match your needs easier with shares because you don’t have to sell a whole corner of the house.
You’re just selling a parcel.
Right.
But the reality is the capital gains will make it hard to get ahead and to reinvest and take opportunities.
So, Philippa asks, is the capital gains tax on owner-occupied homes or just investment properties?
Just investment properties, I think, Philippa.
That’s right.
That’s correct.
Yeah.
We haven’t got to our own homes yet.
So whether you want to gild your bathroom in gold.
Do it now.
Do it.
Which is what people are saying is frustrating about this.
So, Peta, a lot of my listeners are playing with crypto.
Yes.
They now have a tax bill coming.
They do.
Yeah, absolutely.
They’re captured exactly by this, exactly that 30 percent that Tracy just mentioned.
So I think it’s pretty sad that we are taxing savings that you’ve already paid tax on to
save.
Like that money came from somewhere and that’s usually from your hard work, which you’ve
already been taxed and now you’re getting taxed again.
Gosh, why aren’t we reigning in spending?
This budget is in a structural deficit.
We’ve got to 20, 30 something, I can’t even remember.
A decade, yeah.
Yeah.
A decade, a structural deficit for a decade.
Every year.
Assuming everything goes to plan.
Yeah.
And the assumptions, the assumptions within that, like they’ve got stronger growth assumptions
than the Reserve Bank.
The smartest economists in the land are in the Reserve Bank, you know.
Like I don’t feel like Treasury’s quite, well Treasury’s just painting a story, but anyway,
I’ll probably get in trouble by someone here.
But anyway.
You be you, Peta.
Take no prisoners.
Really, we’re growing debt every year by $30 billion and that’s insane.
Like we’ve just increased the tax intake in one fell swoop with all of this and here we
are still spending.
Any final statement you’d like to make, Tracy Norris?
Look, I think that the claim that it’s addressing intergenerational equity is a little ambitious
in my thinking because if you want to address intergenerational equity, that means equity
and fairness across the board.
And I think creating minimum tax rates of 30% with non-refundable credits around family
trust taxes and capital gains now being potentially indexed again and subject to highest marginal
rates of tax doesn’t address that when you make an investment choice, you’re going for
a longer term sort of outcome and maybe an average tax rate of 30% is more fair and equitable
than the ambitious budget we’re talking about.
Why didn’t they try and rein in spending at all?
Any idea, any thoughts?
Probably too hard.
Too hard for them.
Politically too hard.
Politically, but it’s insane.
Like there’s I think about $16 billion worth of savings coming with the NDIS, but they’re
still spending and that’s in outer years.
And you can tighten things up and have better rules in place and register operators and
get rid of some of that fraud.
I appreciate you both coming in.
One of my listeners Megan asked, you have a testamentary trust in your will with your
husband.
I think you need to get professional proper advice Megan.
It sounds a bit complicated without knowing the circumstances.
In the meantime, Tracy Norris from Picture Partners and Peta Tilse from NatGen, thank you very much to both of you for coming in.
Pleasure.
Thank you, Steve.