Background: Just five weeks ago, the Federal Government handed down its budget, promising reforms aimed at delivering "intergenerational equity." That included the biggest changes to capital gains tax (CGT) and negative gearing in more than 20 years. Safe to say... the government was expecting applause. It did not get that.  

What happened: Under the original plan, the 50% CGT discount would be replaced with inflation indexation for all asset sales. The changes would affect share and crypto investors, business owners, and anyone selling assets through a trust. But after much criticism, the government has made some major backflips:

• The small business CGT active asset reduction threshold has been lifted from $2 million to $10 million in turnover. Plus... a new tax concession for equity in private startups.
• Trusts used for genuine inheritance purposes are now exempt from the proposed 30% minimum tax.

What else: Despite these carve-outs, the CGT discount is still being scrapped for share market and crypto investors. So, while business owners have scored some carve-outs, critics argue the government is still taxing many of the investments that help drive economic growth.

What's the key learning?

💡 When economists talk about capital, they generally split it into two buckets: "passive capital," which include things like land and established property, and "productive capital," which is money invested into businesses, startups, and other ventures.  

💡 Governments around the world have historically offered capital gains tax concessions to reward investors for taking on genuine risk when backing growth-focused assets.  Because growth-focused assets create jobs, builds industries and grow the economy.

💡According to a post-budget survey by JWS Research, just 0.5% of respondents supported replacing the CGT discount. So, despite carve-outs for certain businesses, the proposed changes have still made most forms of capital investment less attractive.