Budget 2026/27: Good intentions, unintended outcomes?

What looks like a targeted reform to capital gains tax, negative gearing, superannuation, and trusts is a broad reallocation of incentives across the entire investment landscape.

Some of this is needed to address clear distortions.

Negative gearing of property and income splitting inside family trusts are clear examples, but when tax policy is used to punish growth capital relative to income strategies, good intentions can lead to poorer economic outcomes.

Australian equity returns have historically been a mix of income and capital, but that mix is highly regime dependent.

There have been extended periods where income dominated, periods where income and capital were balanced, and periods-particularly in more recent decades-where capital gains did the heavy lifting thanks to the deregulation, privatisation and trend decline interest rates.

This distinction matters enormously for tax. If returns skew toward capital and the tax system becomes less concessional on capital gains, effective tax rates rise, even if headline tax rates do not.