A scaling capital gains tax
When it comes to trading securities one of the most amusing aspects is how little pieces of information will quickly cause outrageous movements in prices. Take today for instance; last night’s news was that metal prices had fallen causing the resource sector to move into the red. Fortunately for the companies involved nearly all the contracts they sign are in the 6-12 month range so the daily fluctuations in metal prices wont make any difference to the companies profits today, tomorrow or even this month. However, the change in share price has wiped out tens of millions of dollars of shareholders money.
Due to the ever changing mood of the stock market the only way to reliably earn money from securities for the average investor is to invest over an extended period of time; generally the longer the better. The Australian government has an incentive to cause people to hold onto their securities longer whereby the capital gains tax moves from the standard 30% to 15% after 12 months. While this rewards long term investment I don’t necessarily think it does enough to stop people making short term trades. After all, if you’re an individual paying capital gains tax still feels psychologically less than paying income tax of 40% even though you’re more than likely going to end up paying capital gains more times due to your incessant buying and selling.
To further force people to invest for longer periods I propose to replace the current capital gains tax with one that scales a bit further on either end of the spectrum. Here’s my suggestion:
- 0-12 months: 50%
- 1-2 years: 30%
- 2-5 years: 15%
- Anytime after 0%
As you can see holding your securities for 5 years or longer gives you a major tax break allowing the citizens to be that much better off. This extra money allows the government to do its job of increasing the welfare of their populace without having to resort to extra education or holding their hands through retirement via the old age pension; a win-win situation for everyone.