There is much debate right now about the recent federal Labor government’s tax reforms.
Many of us are just starting to understand the implications, digesting all the information and navigating conflicting opinions.
Because of the complexity, many of us simply stick our heads in the sand – the great Australian way of thinking: she’ll be right, mate.
But this time, it might not be!
My perspective comes from my own direct experiences, both as a business owner and a property professional.
I started my business nearly 22 years ago with partners.
We worked tirelessly, rarely took holidays, if any, didn’t have a sick day for the first 10 years, never had long service leave.
When my kids were born, I couldn’t take paternity leave, then worked most weekends and after hours, once the kids were in bed.
When starting a small business, you can’t get a bank to lend you money against the trading accounts. If they do, it is very expensive.
Nearly all business lending is secured against property, usually the owner’s house. This is why many Australian small business owners invest in property.
Property allows borrowing at a competitive rate to reinvest in employment, IT upgrades and contract bidding. It is how productivity is paid and we wonder why productivity is now almost zero.
This lending has been hampered and business margins have been eroded by taxation.
In the first 10 years or so, I didn’t take home much.
We paid ourselves very minimal wages by today’s standards. When I did get a windfall, I invested it, bought property so I could, when the time was right, use that equity to reinvest in my business.
Business growth comes through employment. My employees are like family; each new hire brings responsibility, each one is another family relying on the business to put food on the table.
Employing people is scary, essential and full of both responsibility and risk. The only way to manage that risk is by holding equity in property assets so when times are tough, I can pull equity to keep paying wages!
I am lucky to be living the ‘Great Australian Dream’. This is possible through tools such as negative gearing and capital gains reductions.
For over 100 years, Australians have enjoyed a unique culture of opportunity – the chance to work hard and be rewarded, to build wealth through property and reinvest it in business.
Australians have an entrepreneurial spirit and in nearly all sectors we have innovated beyond other countries, developing everything from the best farming methods to medicines that cure diseases.
Our culture is built on the expectation that we can achieve our ambitions through hard work, which is now to be denied to us.
The proposed capital gains changes effectively means the government claims a 47 per cent share of your business if you sell.
They don’t pay for it, don’t experience sleepless nights and don’t share in the risk. That’s all on you. This measure will undermine our entrepreneurial spirit.
But, as we dive more into the fine print of this budget, it gets worse.
Small business owners are encouraged to have wills to provide some security and protection for our children. The most common structure that is used in estate planning is via discretionary trusts.
These structures will now be taxed at 60 per cent! This is effectively a death tax.
If we can’t put things in place to protect our kids in the event we die, without the government taking 60 per cent of it, why am I working so hard and taking all these risks?
As a property professional, hand on heart, these changes will have such minimal impact on reducing established house prices; it will not even be measurable.
It effectively pulls up the ladder and leaves the kids behind. It will not close the inter-generational gap!
Investors fleeing the equity markets will now flock to buy off-the-plan houses and units that were once the domain of first home buyers, making it harder to get your first property.
We can expect new dwellings and unit prices to rise.
More importantly, this budget threatens our very culture. We lose the very thing that sets Australia up as a land of opportunity.
We cannot put our heads in the sand. Now is the time to demand that people with real-life experience advise governments, not just bureaucrats or university lecturers who have never lived it.