The Federal Budget CGT Tax Grab Nobody’s Talking About
By Dale Gillham
Everyone’s talking about the impact on property regarding the proposed changes to capital gains tax (CGT) to be announced in the federal budget this week, but almost no one is talking about the impact on shares, which is a much bigger deal than people realise. If the government cuts the current 50 per cent CGT discount to 33 per cent or even 25 per cent, investors, ETF holders, and even crypto investors are likely to be hit too.
The impact of the proposed CGT changes
This changes the equation for millions of Australians because unlike property, the share market is often the only realistic entry point for younger Australians trying to build wealth. Many can’t afford investment properties, so they turn to shares, ETFs, and long-term investing to get ahead outside of wages alone.
Now that path may become far less attractive. Australians already take risks by investing their capital and wearing the losses when markets fall. Yet when they finally make a profit, the government now wants a larger cut of the reward.
The irony of this is hard to ignore. Years of excessive government spending helped fuel inflation, which pushed interest rates higher and crushed household budgets. Now, after Australians have already been squeezed by rising living costs, the proposed solution appears to be taxing investment gains even harder.
What does the change to CGT mean for investors?
If the reward for holding long term keeps shrinking, Australians may start questioning why they should sit through major downturns just to receive less favourable tax outcomes at the end of it. The traditional “buy and hold no matter what” approach may become harder to justify.
Instead, this could push more investors toward becoming active risk managers rather than passive holders. Protecting capital during major market downturns, taking profits when markets become overheated, and managing tax outcomes more strategically may become increasingly important. Because once investing becomes less rewarding, people don’t just make fewer trades, they start changing the entire way they invest.
Whether you’re young or nearing retirement, Australians who have never thought about actively managing their investments may soon be forced to learn because in this environment, simply holding and hoping may no longer be enough to maximise long-term returns.
What are the best and worst-performing sectors last week?
The best-performing sectors included Materials, up 4.26 per cent, followed by Industrials, up 1.02 per cent and Information Technology, up 0.79 per cent. The worst performing sectors included Energy, down 7.62 per cent, followed by Utilities, down 4.46 per cent and Consumer Staples, down 3.56 per cent.
The best performing stocks in the ASX top 100 included Capricorn Metals, up 15.80 per cent, followed by Greatland Resources, up 10.37 per cent and IGO Limited, up 8.59 per cent. The worst-performing stocks included A2 Milk Company, down 10.04 per cent, followed by Woodside Energy Group, down 9.27 per cent and Whitehaven Coal, down 8.57 per cent.
What's next for the Australian stock market?
The All Ordinaries Index roared back for most of last week, although Friday’s sell-off wiped out almost all of those gains, leaving the market up just 0.29 per cent overall. While this kind of volatility is becoming more common, what is slightly concerning is that sellers once again stepped in around the same level they’ve been defending since August last year.
Add in the seasonality factor of May and June, which are historically weaker months for the market, and the picture becomes less encouraging. Last week’s price action showed that no matter how much momentum the bulls can generate, sellers still appear to have the upper hand at key resistance levels.
Right now, the market sits in a very clear technical position. If the All Ords can hold the 8,800 to 8,900 point range, then buyers remain in control. However, if the index fails to break through 9,200 and then falls below 8,800, sellers could quickly drive the market back toward 8,000 points. The most likely scenario at this stage appears to be a prolonged consolidation phase, where buyers defend 8,800 as support while sellers continue to cap rallies around 9,200.
So how do you make money in a market like this? The answer is actually quite simple: Trade the stocks in the sectors that are the strongest. Sideways markets often create powerful opportunities beneath the surface because different sectors can move in completely opposite directions. Materials had a very strong week and currently looks like one of the better areas for upside opportunities. Energy, on the other hand, suffered a sharp decline, which could present attractive shorting opportunities for traders.
It’s also important to acknowledge that despite all the volatility this year, the Australian market is still holding up remarkably well. Considering the uncertainty investors have faced, the resilience of the market has been impressive and far stronger than many expected.
Good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.
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