Ms SPENDER (Wentworth) (18:57): For a long time, I have campaigned hard for the day when this House would be debating the substantive details of tax reform instead of talking about it in the abstract. Since 2022, I've held roundtables with experts, hosted events in my electorate, attended the Treasurer's own roundtable, written two substantial policy papers, made further submissions to inquiries and made the case time and time again, publicly and in the media. After 25 years of timidity, we are finally having that debate. That in itself is an enormous leap forward from even just a few months ago. It takes real guts to put a package like this into the world, and for that I commend the government and particularly the Treasurer.

But I will be honest: I have concerns with the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 in its current form. It is not because I don't support the intent. The government has correctly diagnosed significant problems in Australia's tax system. It's not because I don't support the broad direction of the measures. I believe that, alongside greater spending restraint, we need to reduce our reliance on tax from wages, and this should be paid for by reducing tax concessions on assets. I'm concerned because there are still substantial issues with the government's CGT model which are not resolved and not necessarily understood, and because the government has not yet committed to giving all the money raised back as income tax cuts.

I know many will say that I'm allowing perfect to be the enemy of better, but I would argue that my community asked me to put reform on the table but also to make sure that the government gets the reform right. This bill is rushed. The proposed inquiry is unacceptably superficial. The government has admitted problems with the bill without fixing them. The government can't seek credit for the most significant tax reform in a generation and then push it through the House with only a week to review the detail. That is treating this parliament and the genuine issues of this bill with enormous disrespect. So I continue to urge the government to pause, rigorously test its assumptions and model, and, as uncomfortable as it is, bring the bill back to parliament when the reform is robust and it will stick.

Let me start with why I believe we need genuine reform, why this debate matters so much and why I support the direction of travel. Our tax system places the greatest burden on people at the time of greatest stress. A younger household pays, on average, twice the tax of an older household on 100 grand of income, despite being, on average, four times less wealthy and being more likely to be carrying a HECS debt, saving for a deposit, paying rent or raising dependent kids. These households are failing to build wealth at the same rate as their parents. The result is most visibly stark in housing. The combination of negative gearing and capital gains discount has tilted the balance decisively towards investors rather than first home buyers. That is not an accident. It is a consequence of deliberate tax settings, and it must change.

At the same time, our demographics are shifting in ways that make our tax system unsustainable. We used to have six workers for every Australian aged over 65. Now it is fewer than four. In a generation it will be fewer than three. Yet only 17 per cent of older Australians pay income tax today, compared with 27 per cent in the past. We are asking a shrinking pool of younger working people to fund a growing bill. With the disruption that AI will bring to entry-level employment, that reliance becomes more precarious still. Australia's tax base must be broadened. That is an inescapable conclusion. But it matters enormously that we get that broadening right.

This bill introduces four changes that attempt to address that. First, it will introduce a new method for calculating the capital gains discount based on indexing an asset's cost base to the annual rate of inflation. This will include a minimum tax rate of 30 per cent on real gains. Second, it will restrict negative gearing on housing investment for sales after budget night to only new builds. Third, it will introduce a $1,000 standard deduction. Finally, it will introduce a $250 Working Australians Tax Offset each year, starting from 2027-28.

Most of these changes I support. Restricting negative gearing to new builds is sensible, although I would urge the government to also phase out negative gearing on existing properties over seven years rather than grandfathering it indefinitely. A standard deduction is long overdue, and the WATO introduces tax relief, which I welcome, particularly relief that targets work. But the fundamental problem with this component of the package is that it leaves far too much on the table—$77 billion, in fact. I appreciate that the transition arrangements mean that revenue takes a long time to come in, but that doesn't excuse holding on for a pre-election sweetener or to prop up historically high levels of government spending.

I want to make the point that, unlike some other speakers in this debate, I strongly support the government's endeavour to broaden Australia's income tax base—not just on property assets—if it means we can reduce our reliance on income taxes from wages. Let's look at the facts. Just eight per cent of the capital gains tax discount goes to people under the age of 40. If you want to help people under the age of 40 build wealth and financial security, you can make much more of a difference by reducing their marginal tax rates than through CGT discounts. A package of this size could support a version of the coalition's plan to index tax brackets to stop bracket creep in the first place, a policy I was pushing for long before the opposition came onboard.

But we fundamentally need to reduce marginal tax rates, including the top marginal tax rate. The government has done half the reform with these measures, but with a very serious omission on the other side of the ledger. That is a decision of expediency. I'm sure there are some tax cuts coming closer to an election, but I think it is a missed opportunity to build trust within the community and, frankly, to make sure these tax changes are in a direction that Australians understand and can support.

But my primary concern with this bill and the biggest risk to the reform is the CGT package. Let me be clear. I believe that Australia's current CGT regime is overly generous and is not fit for purpose. I have made the case many times that the current discount of 50 per cent means that someone on a wage of 100K pays $26,000 in tax, versus someone who earns that income from property investment, who pays only $7,000 worth of tax. I think it is very hard to justify the extent of that difference. I particularly support ceasing the concessions on pre-CGT assets. There is no justifiable reason that they are still treated like this 40 years on. I will pay more tax under the government's arrangements, and I support that.

If done right, CGT reform can preserve strong incentives to take risks and build businesses, all while ensuring that more Australians can build wealth through lower marginal tax rates. But the methodology is important. I don't think there is a perfect CGT regime, and there is a lot of variation around the world. It must strive to carefully balance building prosperity and ensuring fairness, and I am concerned that the approach doesn't get the balance right. There are strengths in what the government is proposing. It has a strong intellectual basis—having a system that taxes real gains consistently. There are significant advantages for fairness, and those play out particularly in the housing market. But my concern about this methodology is how this system works in a world where almost all countries tax at lower and flatter rates and where capital and labour are mobile, and where no other country taxes real gains in this way except Israel, which has a top marginal tax rate of 30 per cent, versus Australia's of 47 per cent, on capital. I am also concerned that this model is hard for many people to understand and to predict, and that simplicity is genuinely a virtue in tax, where people are concerned and don't feel very confident.

Firstly, investors choosing between safer and risky investments will find that the returns on risk are considerably less attractive under this indexation model versus previous models, and also compared with most international tax regimes. That effect is compounded by a fundamental asymmetry in the model itself, which taxes real gains but only allows the deduction of nominal losses. The businesses we most want to encourage—high-risk, high-growth, capital-light, genuinely innovative businesses—are taxed at a much higher rate under this model and, in many cases, at an internationally uncompetitive rate. That is a problem in a world of high labour and capital mobility.

Now, I do believe that some of the concern about some of these risks is overstated. Most businesses will not be taxed at close to 47 per cent. There still remain significant CGT concessions for small businesses, and I believe that these should be maintained and, frankly, should grow. The government has committed to engage with the tech sector on these issues, and the feedback I've received is that that engagement by government is really genuine. But I am concerned that there will be real impacts, not on all businesses but on some—on some founders of high-growth companies who already have strong incentives and pressures to move offshore; on some workers who already struggle to give up secure jobs for uncertain outcomes; and on some investors, where the returns on risk are significantly diminished. That makes me nervous. At a time when we are struggling to build prosperity, to increase our productivity, we should be very cautious about changes that could affect productive risk taking and we should weigh the costs and benefits thoughtfully and ask if there is a better way to do it.

While I think that the government is absolutely right to reduce the gap between the taxation of labour and the taxation of capital, I do believe that there is a difference between receiving a secure wage today and building, investing in or working on a project based on the prospect of a future upside but also on the prospect of capital losses or wages unearned that cannot be offset against current or past labour income. The tax system can't fix every issue, and other policies are important, but in practice the tax system has the ability to weaken those other mechanisms.

Finally, there is a more practical problem. Many Australians do not understand the model. Being told that how much tax they will pay 'depends' is a difficult answer for many Australians when they are trying to plan their investments and retirement, and it is hard for them to know what this means for them. This uncertainty is bad for individuals planning their finances or business. The model has also greater uncertainty for government as to how much money will be raised.

Now, as I said, I do believe there are some advantages in the government's model and I do believe some of the issues I have raised can be overcome. But it is not yet clear to me that the advantages that the model promotes compensate for the risks that it creates, and certainly not as it is currently written.

A simpler path exists. I honestly believe that reducing the flat discount to 35 or 40 per cent, rather than the indexation approach, would narrow the gap between the taxation of labour and capital, produce a model that is comparable with other countries—at a 40 per cent discount, you'd be talking about a top capital tax rate of 28 per cent, which would be well within the bounds of most OECD countries—and raise similar, more stable revenue while still rewarding high-growth businesses and high-growth investments and not having the issues with startups that we are concerned about. That is what I believe the government should do. Failing that, I think the indexation method must deal with at least the known problems of the model and give time to explore some of the risks that are not yet fully understood or are still being explored.

That is why I'm putting forward three substantive amendments to the Treasury laws amendment bill—firstly, to remove the 30 per cent minimum rate on tax with instead income averaging over the previous 10 years of the asset or the life of the asset, whichever is lower; secondly, for to allow for real losses to be indexed the same as real gains; and, finally, to remove active businesses from the new CGT indexation regime. These amendments mitigate some of the most serious concerns that have been identified to date, but, honestly, I don't know if they are the perfect amendments. The truth is that we have not explored these bills and the changes that they create in our system enough.

There are issues that are emerging in the papers most days, but there are also counterarguments emerging. That shows that a dialogue on these bills is really necessary. I do believe that the amendments would be an improvement, but I don't believe that they would replace genuine interrogation and scrutiny, which is what these bills deserve. I cannot stress that enough. To the government: take a breath, consult broadly and address the genuine concerns raised by stakeholders.

I support the government's aim, the intentions and most of the measures, but a CGT indexation mechanism has both known and unknown flaws. Instead of being a political liability, there should be a natural process of getting this complex issue right and making sure that the reforms do address the issues that have been raised in thoughtful ways—or, at least, that the risks are properly understood by the broader population.

This budget has some extremely positive measures: the ending of negative gearing, a standard deduction, income tax relief, loss refundability and carry back, research development tax incentive reform, the permanency of the instant asset write-off and a commitment to reforming the performance test among others. I'm genuinely sympathetic to the government that these measures, many of which I have called for, have been overshadowed by the proposed CGT regime.

The piece that I would like to finish on is this: let's get this right. Tax reform really matters. This is not the only tax reform this country needs. There are many areas that need substantial reform, but, if we get this wrong, if we rush it, if we make mistakes, it will make future reforms much harder. It is time to get this right, and that is what I urge the government to do.