Labor’s proposed capital gains tax (CGT) changes are poised to significantly reshape investment incentives on the Australian sharemarket, with UBS labelling the upcoming budget the most consequential for the ASX in years. These reforms are anticipated to diminish the appeal of high-growth technology and medical stocks, potentially boosting interest in traditional banks and real estate businesses. UBS equities strategist Richard Schellbach noted that such speculated tax changes could materially alter investment incentives and shift capital flows.
The federal budget is expected to abolish the 50 per cent CGT discount for investments held over 12 months, reverting to a pre-1999 inflation indexation system that taxes real gains adjusted for inflation. This reform would make stock investments focused on capital gains less attractive. Telix Pharmaceuticals is a cancer treatment developer. It is currently working to secure product approval from the health regulator in the United States, and its shares were identified among those that could become less appealing. Other firms include Pro Medicus, Xero, TechnologyOne, HUB24, Sigma, and Fisher & Paykel. Goldman Sachs’ Matthew Ross highlighted that while CGT reforms would create the world’s least favourable tax treatment for capital gains locally, Australia would offer the most favourable global tax treatment for dividends.
Conversely, companies offering higher dividends are expected to become more attractive. Firms like Bank of Queensland, paying approximately 6.5 per cent in annual dividends, property developer Stockland, and rail freight business Aurizon were listed as potential beneficiaries. Gas pipeline operator APA Group, shopping mall landlord Vicinity Centres, and National Australia Bank also feature. Additionally, the Albanese budget will curtail negative gearing for property investors, which Schellbach suggested would reduce property’s appeal and make equities comparatively more attractive. APW Partners’ Greg Keady cautioned against solely tax-driven decisions, emphasising risk-return characteristics should remain the primary driver.
