The Australian government’s proposed reforms to capital gains tax (CGT) are expected to primarily benefit larger corporations, according to fund managers and market analysts, amid concerns the changes could shift investment away from smaller, high-growth companies. The legislation, which aims to overhaul the CGT system and negative gearing rules, was introduced by Prime Minister Anthony Albanese and is scheduled for parliamentary debate during the next sitting fortnight.

The revised bill would replace the current 50 percent capital gains discount with an inflation indexation model alongside a minimum 30 percent CGT rate. Additionally, the government raised the exemption threshold for businesses from an annual turnover of $2 million to $10 million to address criticisms and secure support from the Greens and other stakeholders. The changes also include the removal of broad ministerial powers that had been a point of contention.

Despite these adjustments, asset managers warn the reforms carry risks for economic growth and investment dynamics. A report by Wilson Asset Management highlighted that investors benefit from franking credits on dividends—which are taxed company profits distributed to shareholders—but not on capital gains generated by share price appreciation. As a result, companies with high dividend yields, such as major oil and gas firms Woodside and Santos, along with big banks and real estate investment trusts, are projected to be the main beneficiaries under the new tax regime.

Wilson Asset Management’s head, Mr. Wilson, described the likely impact as a fundamental shift away from companies that drive productivity, innovation, and employment towards large, mature, and concentrated businesses. The ten largest listed companies, which constitute nearly one-third of Australia’s $3.3 trillion share market and include significant foreign ownership, stand to gain disproportionately.

Nick Paradice, manager of Australia’s largest fund focused exclusively on small companies, echoed these concerns. He noted the tax reforms could increase the cost of capital for smaller firms as investors gravitate toward income-focused strategies rather than growth-oriented investments. “People will prefer income with the tax benefit,” Paradice said, adding that the shift could lead to less investment in growth companies and a potential increase in foreign ownership if valuations decline.

The Greens have so far withheld full support for the package, expressing wariness that the tax changes would favor larger enterprises. Greens economic justice spokesman Nick McKim said discussions with the government were ongoing and awaited further details on Labor’s amendments.

Economists also weighed in on Friday, with AMP’s Shane Oliver suggesting the changes could bias investors towards dividend-paying stocks at the expense of growth investments, thereby potentially reducing available capital for emerging and expanding companies. Mr. Wilson stressed the importance of understanding investor behavior under the new rules, noting the incentive to favour companies with fully franked dividends that yield stable returns in line with inflation.

Following these developments, a report from this week’s Senate CGT inquiry recommended releasing Treasury’s economic modeling related to the tax changes for public review and advocated for an independent assessment of their broader economic impact.