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VI. Conclusion

23.82. In conclusion it may be helpful to give a broad summary of the analysis of this chapter:

  • (a) On grounds of equity there is a very strong case for taxing capital gains, and there is a case too on economic efficiency grounds. A tax on capital gains should therefore form a part of the Australian tax structure. However, the introduction of such a new and complex tax is a matter requiring careful thought and considerable public discussion. Furthermore, the introduction of such a tax at a time when inflation is running at an annual rate approaching 20 per cent must result in the taxation of ‘paper’ gains in many cases.
  • (b) Accordingly the 1974–75 Budget proposals to introduce a capital gains tax with effect from 17 September 1974 should be withdrawn. A Green Paper on the United Kingdom model should be published to provide adequate opportunity for critical analysis and debate before any legislation is introduced and before the tax goes into operation.
  • (c) Further study needs to be given to the most appropriate way of allowing for the impact of inflation in the context of a capital gains tax. Whilst the Committee rejects the indexation of gains as impracticable under normal conditions, it recognises that this device has some merit in conditions of very high inflation and is worthy of further examination. If a capital gains tax is to be introduced which adopts the proportional inclusion method recommended


      ― 434 ―
    by the Committee, then the proportion of the gain to be included in income should be considerably less than half during periods of high inflation.
  • (d) The tax should apply only to gains accruing and realised after the introduction of the tax and the family home should be exempt.
  • (e) Continued efforts are needed to achieve a workable system of distinguishing between income gains and capital gains.
  • (f) The possibility of treating development gains more severely than other capital gains requires close consideration, but the attendant complexity of any such separate tax on development gains must be borne in mind.

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