By Richard Holden >>

EDITOR’S PREVIEW

PROFESSOR RICHARD HOLDEN researched the Federal Labor Government’s taxation direction in the 2026 Federal Budget and was horrified to deduce that its effect would be to place extra tax on businesses that are actually improving their productivity. Productivity is – up until now it seems – what Australian Governments encourage.

Productivity improvement has been the cornerstone of Australia’s mantra for genuine economic development for decades, even before the 1998 Act of Parliament that replaced the Industry Commission, the Bureau of Industry Economics and the Economic Planning Advisory Commission.

A generation before that Act, in 1974 the Industries Assistance Commission was established, replacing the problematic Australian Tariff Board, which was simply a name change in 1989 to the Industry Commission, all designed to build business growth through the broadening of free trade globally and the corresponding business productivity growth that is required – and largely achieved competitively – through technological and training improvements.

Professor Holden has spotted something that is an unexpected consequence of taxation changes – mainly directed at restoring a fairer market for home buyers – and Australia should pay attention. >>

Author >> Professor Richard Holden >>

>> NEW economic analysis, released for the first time this week, has found that the tax changes in the 2026 Federal Budget create Australia’s first ever by-design ‘Productivity Tax’.

A Productivity Tax exists when the interplay of different taxes means high productivity businesses pay a higher tax rate then low productivity business.

A high productivity business is a business that grows fast, at a speed above inflation, low productivity businesses grow more slowly, usually at or below the inflation rate.

High productivity businesses create more jobs, and more economic activity. Low productivity businesses do the opposite, often shedding jobs over time.

In a profound oversight, economic analysis released today shows that the new business tax regime announced in last week’s Budget create this exact situation.

Two identical businesses, delivering the exact same service, one highly productive, the other unproductive, will now face vastly different effective capital gains tax rates.

As the example below shows, the high productivity businesses, the business that creates more jobs, and more economic growth, will pay a vastly higher rate of capital gains tax on the sale of the business, than a low productivity low growth business.

Consider the example below:

There are two industrial cleaning businesses started at the same time, by two different husband-and-wife teams. Both couples are in their early thirties.

Business 1 is a low productivity business. Business 2 is high productivity.

They both begin with an initial investment of $450,000. This is the life savings of both husband-and-wife teams. Both businesses generate $2,000,000 of revenue in their first year. Both have 4 employees, and both generate a profit of $150,000 in their first year.

Over the next five years, Business 1 – the low productivity business – grows at 3% a year, ends up generating a profit of a little over $300,000 in the 5th year, and is sold for 4 times that—around $1.2 million. It still employs 4 people. With inflation at 3% a year Business 1 has a taxable capital gain of $680,000. Under the new capital gains tax regime, they pay 47 cents on the dollar, or about $320,000 in CGT. That’s an effective tax rate of 26.6% of the sale price.

Over the same five years Business 2 – the high productivity business – grows at 15% a year each year for 5 years. They end up employing 6 people. They also sell it for 4 times the year 5 profit of $1.05 million, or $4.2 million. They have a taxable capital gain of $3.67 million, pay $1.7 million in CGT, for an effective tax rate of 41.2% of the sale price.

Both businesses took a risk, grew a business, employed people, and paid tax, and both sold for the same multiple of profit. It’s just that Business 2 was more productive.

In return for this high productivity the couple who started Business 2 are punished with a capital gains tax rate more than 55% higher than the owners of Business 1.

In other words, the new tax system will now punish businesses more likely to create jobs and economic growth, and reward businesses more likely to shed jobs.

This is the worst possible plan for a country in need of more jobs, and more economic growth. It’s a Productivity Tax in the middle of a productivity crisis.

Unfortunately, that is the perverse logic of a Productivity Tax, they punish high productivity businesses for doing well, growing fast, and creating more jobs.

Young people will pay the biggest price for this profound policy error, because they will miss out on the jobs, growth, and prosperity that productive businesses create.

(For the full workings of the two examples above, see Annex 1 below).

ABOUT THE AUTHOR

Professor Richard Holden, FASSA FES FRSN, is the vice-chancellor’s professor and chief societal economist at the University of NSW Business School. www.unsw.edu.au

SUPPORTING EVIDENCE

ANNEX 1 — Full workings

Both businesses begin with identical $450,000 initial investment, $2,000,000 Year 1

revenue, 4 employees, and $150,000 Year 1 profit. The only difference is the revenue

growth rate.

Business 1 — Low Productivity Business

Growth rate: 3.0% p.a. | Inflation rate: 3.0% p.a. | Initial investment: $450,000

                           Year 1              Year 2             Year 3             Year 4            Year 5

Revenues        $2,000,000      $2,060,000     $2,121,800      $2,185,454      $2,251,018

Fixed costs     $1,050,000      $1,050,000      $1,050,000      $1,050,000      $1,050,000

Variable costs $800,000        $824,000        $848,720         $874,182        $900,407

Costs                $1,850,000      $1,874,000      $1,898,720      $1,924,182       $1,950,407

Profit                $150,000         $186,000         $223,080         $261,272         $300,611

Employees      4                      4                      4                      4                      4

Cumulative profit (Years 1–5)          $1,120,963

Indexed investment                           $521,673

Sale multiple                               4x Year 5 profit

Sale price                                              $1,202,442

Capital Gain                                          $680,769

CGT @ 47%                                            $319,961

Net gain                                                 $360,808

Effective tax rate                                 26.6%

Business 2 — High Productivity Business 

Growth rate: 15.0% p.a. | Inflation rate: 3.0% p.a. | Initial investment: $450,000

                          Year 1               Year 2              Year 3             Year 4             Year 5

Revenues        $2,000,000       $2,300,000      $2,645,000     $3,041,750      $3,498,012

Fixed costs     $1,050,000       $1,050,000       $1,050,000      $1,050,000      $1,050,000

Variable costs  $800,000       $920,000           $1,058,000     $1,216,700      $1,399,205

Costs                $1,850,000       $1,970,000        $2,108,000      $2,266,700    $2,449,205

Profit                $150,000          $330,000          $537,000         $775,050       $1,048,807

Employees      4                      4                        5                       6                       6

Cumulative profit (Years 1–5)         $2,840,857

Indexed investment                          $521,673

Sale multiple                            4x Year 5 profit

Sale price                                            $4,195,230

Capital Gain                                       $3,673,557

CGT @ 47%                                         $1,726,572

Net gain                                              $1,946,985

Effective tax rate                              41.2%

Summary comparison

Effective tax rate — Low Productivity   26.6%

Effective tax rate — High Productivity  41.2%

Tax multiple (High ÷ Low)                        1.55x

ends

By Leon Gettler, Talking Business >>

MARKETS have become so volatile with the Middle East in turmoil over oil and the Strait of Hormuz.

How should people invest?

Dale Gillham, professional trader and chief analyst at WealthWithin said people need to think long term about potential investments.

He also said the current nervousness in the market created opportunities for people to get in at better prices.

“I just think the current situation around the world was creating that nervousness but that also creates exactly the opposite,” Mr Gillham told Talking Business. 

“It creates a lot of opportunity for people to get into some really good stocks at better prices. So once things have settled down, they’ll be able to take of that.”

Psychology and investment attitudes are key

Mr Gillham said he had been mentoring and teaching investment for three decades and most investor success comes down to investor psychology and investor behaviour.

“It’s not about skill in analysing the next stock,” Mr Gillham said. “It’s about their actions when the market is very volatile or very uncertain and it’s also (about) their actions when the market is very bullish

“One thing I know is markets change, volatility changes but human behaviour doesn’t change and human behaviour determines whether we make money out of the stock market or we don’t.”

Mr Gillham said people have to think long term when it comes to investing “but we are now becoming short term thinkers”.

“I’m seeing a lot more people, especially since the turn of the century, they’re getting a lot more algorithms and AI,” he said.

“They’re armed with smart phones that can give you every single thing you need on the planet, with red and green buttons and gamifying the stock market.

“It’s creating that short term vision.

“Most people I’m meeting at the moment, they’re looking at small micro-cap stocks, very illiquid stocks with the false view that they’ll make a lot of money quickly on those stocks but what they don’t understand is that the percentage chance of them getting it right, especially with little knowledge and experience in the stock market is they’ll get it wrong 99% or probably 99.9% of the time.”

Stock investing: don’t follow the herd

Mr Gillham said the stock market generally has a big move very 54 years – from low to high to low.  We saw that in 1929, we saw that in the 1987 crash.

He said if you’re following the crowd, you’re going the wrong way when it comes to the stock market.

Mr Gillham said one prime example of that is the way investors piled into Bitcoin before it plummeted.

“Every single man, woman, dog and child is talking about Bitcoin,” he said.

“They were borrowing money to buy Bitcoin and it crashed in three months.”

He said the key rule is that “when taxi drivers are giving you stock tips, get out”.

Mr Gillham said he had seen it so many times over the last few years, including the 1987 crash and the Global Financial Crisis (GFC) crash.

“I’ve studied our Australian stock market back to 1875 and the Dow back to 1900 and human psychology does not change ever,” he said.

“Fear and greed runs the market.” 

www.wealthwithin.com.au

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness 

https://shows.acast.com/talkingbusiness/episodes/talking-business-14-interview-with-dale-gilham-from-wealthwi

ends

NON-BANK LENDER Moneytech has welcomed the Albanese Government’s $1 billion Economic Resilience Program (ERP)¹ as a “timely and important measure” to protect Australian businesses from global supply chain shocks – but is raising questions about why non-bank lenders have been excluded from delivering it.

The program, administered through the National Reconstruction Fund Corporation (NRFC), provides zero-interest loans of up to $5 million to eligible small-to-medium enterprises (SMEs) in fuel, fertiliser, plastics and other critical supply chain sectors.

Applications are currently being processed exclusively through a small group of participating banks, with no pathway for non-bank lenders – even though these lenders now finance a significant share of SME loans across Australia. 

Moneytech CEO Nick McGrath said the program was “exactly the kind of intervention Australian SMEs need right now” but its reach could be meaningfully extended by opening it up to non-bank lenders.

“This is a well-designed program tackling a real problem, and the (Federal) Government deserves credit for acting quickly,” Mr McGrath said. “Our question is a constructive one though, if the objective is to get capital into the hands of as many eligible Australian SMEs as possible, as quickly as possible, why limit delivery to the major banks?

“Non-bank lenders are now a core part of how Australian SMEs access finance. The Reserve Bank of Australia²  itself has noted that the non-bank share of SME lending has grown strongly since 2022, particularly for smaller loans driven by demand from SMEs for faster decisions, more flexible criteria and funding options the majors don’t offer.

“Many of the businesses this program is designed to help already rely on non-bank lenders for their day-to-day finance.”

Pandemic response boosted non-bank lending

Mr McGrath pointed to the precedent set during the pandemic, when non-bank lenders including Moneytech were accredited to deliver loans under the government’s SME Guarantee Scheme alongside the major banks.

“The SME Guarantee Scheme worked because the government recognised that a diverse group of lenders would reach a broader group of businesses. That logic hasn’t changed. If anything, the role non-banks play has grown significantly since then.”

Mr McGrath said Moneytech was not arguing that banks should be cut out, but that the program’s impact would be greater if SMEs could access it through the lender they already use and trust.

“This is about giving Australian businesses more choices, not fewer,” he said. “The SMEs running fuel distribution, logistics, fertiliser supply and manufacturing operations aren’t a monolithic group.

“Some bank with the majors; many don’t. A program that genuinely supports the breadth of Australian industry should be accessible through the breadth of Australian lenders.”

Engaging the finance brokers

Moneytech also highlighted the role of finance brokers, who are the primary distribution channel for SME funding across Australia and would be critical to getting a program like the ERP into the hands of eligible businesses quickly.

“Brokers are often the first call a business owner makes when conditions tighten,” Mr McGrath said. “They understand their clients’ operations and can quickly determine whether a business is best supported by a bank, a non-bank lender, or a combination of both.

“Any program designed to move capital fast should be built around the channels SMEs actually use and brokers are central to that.”

Brokers were also key distribution partners during the COVID-era SME Guarantee Scheme, helping lenders – banks and non-banks alike – reach businesses that needed support quickly.

Moneytech has called for the Federal Government and the NRFC to open consultation with the non-bank sector on how lenders outside the majors can be accredited to participate in the ERP, and will engage directly with the relevant ministers and officials.

www.moneytech.com.au

[1] https://www.nrf.gov.au/what-we-do/investment-sub-funds/economic-resilience-program

[2] https://www.rba.gov.au/publications/bulletin/2025/oct/small-business-economic-and-financial-conditions.html