Yet another article on negative gearing & CGT discount...yet another series of selective use of statistics and observations lacking context. And yet again, the growth engine that is mid-size business is completely forgotten in the debate.

The proposition of this article, while supporting a removal of negative gearing, is that the CGT discount is the bigger fiend that is driving up house prices.  

The problem is however the basis for these arguments.  Take Figure 3 in the article which shows a spike in the house price-to-income ratio since the early 1990's.  Of course this graph is going to show a spike when it starts around the "recession we had to have" and takes us through to the mining boom - but no mention of that or the impact of interest rate reductions in driving prices upwards.  And there is no noting that there has been decided improvement since the pre-GFC excesses were "cycled out" of the system, despite the mining boom occurring at that time.

And Figure 2 provides more interesting statistics.  It postulates that the top 10% of households take 73.2% of the CGT discount benefits.  Of itself, this sounds like a situation of structuring the tax system so that "the rich get richer" right?  Maybe there's an element of that but I am sure there is much more at play.

To put this in context, many families will only reach that "top 10%" in the year they generate a capital gain.  In other words, the 73.2% figure includes many families who will only temporarily reach that status or have reached it for the very first time after a major asset sale.

This will include many mid-size business owners who, after having built economic value beyond the small business thresholds, are not entitled to other CGT concessions.  There is no acknowledgement of this either in the article or in The Australia Institute's Top Gears report (dated April 2015) - and for this important growth engine of our economy to be overlooked is a glaring omission.

The point of the CGT discount is to reward those that have made the sacrifices to achieve independent wealth and also to provide an income smoothing mechanism, in recognition of the fact that capital gains occur infrequently and in potentially large lumps.

Whether the current settings of the concession are correct is a matter for the Government of the day.  But a return to the old inflation-adjusted concession will penalise those that are driving innovation and fuelling economic growth - mid-size businesses.