"Better off buying avocado on toast" - Geoff Wilson's six predictions for Australia's investment future

The Federal Government's capital gains tax reforms have now passed Parliament, locking in one of the biggest changes to the taxation of investment in decades.

From 1 July 2027, the 50% CGT discount for individuals investing outside super will be replaced by cost-base indexation, while investors will face a minimum 30% tax on capital gains. Combined with changes to negative gearing, the reforms have sparked fierce debate about how Australians save, invest and build wealth.

Wilson Asset Management Founder and Chair Geoff Wilson AO believes the long-term impact extends far beyond higher tax bills.

Rather than simply raising revenue, he argues the reforms fundamentally change the incentives facing Australians - discouraging long-term investing, entrepreneurship and wealth creation outside superannuation, while encouraging investors to optimise for tax rather than maximise long-term returns.

In Wilson's view, the unintended consequence is that Australians become less inclined to build their own financial security and more reliant on government support later in life.

"You're probably better off just spending your money on avocado on toast. Why not? They discourage you from starting a business. They'll take half of it," Wilson tells Livewire.

While Wilson has been one of the reforms' most outspoken critics, he believes the bigger story isn't the politics. It's how investor behaviour could change over the next two decades - from direct share ownership and portfolio construction to the future of the ASX, entrepreneurship and productivity.

Below are the six biggest behavioural shifts Wilson believes the reforms will trigger.

#1. Australians become tax investors instead of wealth investors

Wilson believes the reforms fundamentally change why Australians invest.

Historically, investors have sought to maximise long-term wealth creation. Under the new rules, he argues they'll increasingly maximise after-tax outcomes.

"Capital has become a dirty word, growth has become a dirty word. You don't want to invest in growth companies anymore."

Instead, Wilson expects investors to split their portfolios according to tax treatment.

Outside superannuation, he believes portfolios will increasingly shift towards low-growth, high-income companies that pay fully franked dividends, while growth assets migrate into super, where the tax treatment remains unchanged.

"What you're trying to do is find companies that give you a 10% return. You only want 3% growth so you're not paying tax on it, and you want the other 7% as a fully franked dividend."

He also believes Australians will increasingly favour tax-advantaged assets such as the family home and superannuation over taxable investments held personally.

#2. Individual share ownership set to collapse

Wilson believes direct participation in the sharemarket will steadily decline over the next two decades.

He points to the United Kingdom as a case study, arguing retail participation fell sharply after the country abolished its partial dividend imputation system in 1999.

"In the UK, about 30% of individuals owned shares in 2000 and now that's 18%," Wilson says.

"UK fund managers and individuals owned about 40% of the UK stock market in 2000... now the ownership of the whole index by individuals and UK institutions is about 6%."

Australia, he fears, is heading down the same path.

"The super money will continue to be funnelled into the market. But individual share ownership, I think, will probably halve over the next 20 years."

#3. The tax penalty on capital grows

Wilson rejects suggestions the reforms simply bring capital gains into line with labour income.

He argues capital is now taxed more heavily because company profits have already been taxed before shareholders pay capital gains tax.

He illustrates it with a simple example.

If a company earns $100, it first pays $30 in company tax, leaving $70 for shareholders. Under the previous system, Wilson says a top marginal taxpayer ultimately faced a combined tax burden of around 46.5% on those profits.

Under the new rules, he argues the shareholder pays their full marginal tax rate on the $70 capital gain after company tax has already been paid, lifting the combined effective tax burden to almost 63%.

"Capital is being taxed significantly higher whether you're a zero-tax student or whether you're a 47% taxpayer."

Wilson also points to the added complexity the reforms create. 

Rather than simply calculating nominal gains and losses across an overall portfolio, investors will now need to consider the tax consequences of every investment they make. Combined with the new 30% minimum tax on capital gains, Wilson argues the changes make building long-term wealth through investing less attractive.

"Any young person thinking, 'I'm a university student, I've got a little bit of money, I want to put $5,000 in the market,' is now going to have to pay 30% tax on that. So why do that?"

#4. A smaller ASX and more foreign takeovers

Wilson doesn't believe foreign investors will abandon Australia. Instead, he believes they'll increasingly buy Australian companies.

If local investors become less willing to back growth businesses, particularly outside the largest blue chips, Wilson says their cost of capital rises while valuations fall.

"Small growth companies, small mining companies - any company outside the top 20 - will be negatively impacted. Their cost of capital will go up. They won't be fully valued. They'll be cheap."

That, he argues, creates opportunities for overseas acquirers.

"You'll see the overseas guys come in. They might not be investors, but they'll be taking over Australian companies... the ASX will continue to shrink."

#5. Australia will produce fewer Atlassians

Wilson believes the reforms ultimately become a productivity issue.

Australia has spent decades developing a venture capital ecosystem capable of producing companies such as Atlassian and Canva. "It's taken two or three decades to finally get some venture capital market," he says.

Those success stories encouraged more Australians to start businesses, but Wilson fears the incentives are now weaker.

"If I was 21 again, I'm not sure I'd necessarily stay in Australia. If I had aspirations of creating something, being entrepreneurial and growing a business, I think there are a lot better places in the world to do that."

His biggest concern is productivity.

"The Treasurer talked about productivity and capital deepening... what he's done is capital shallowing."

#6. Young Australians face a tougher road to home ownership and financial security

Based on conversations with many of his listed investment company shareholders, Wilson says one concern comes up repeatedly: not their own portfolios, but the opportunities available to their children and grandchildren.

He believes younger Australians will bear the brunt of the reforms because they're the ones still trying to build wealth.

"Young people are buying ETFs. They're trying to put their money together to get the deposit for their first home. Now the numbers I've seen show that, with the higher tax rate, it's going to take an extra four years for the average Australian to save for their deposit."

The obvious alternative is to direct more growth assets into superannuation, where the tax treatment remains more favourable. But Wilson says many younger Australians are reluctant to lock away even more money for decades.

"They said, 'I'm not going to do that because I don't trust the government. I'm going to have it locked up for 30-odd years. How do I trust them in terms of what they've already done?'"

Wilson believes that's the unintended consequence of the reforms. Rather than encouraging Australians to build wealth independently, he fears they'll create less private wealth and greater reliance on the state in retirement.

"There'll be less wealth created. Why have your self-managed super fund if you don't trust the government? Why put more money in that? You're better off getting looked after by the government when you get old."