While most Australians receive the bulk of their income as wages or salaries, much of the increase in wealth for high net worth individuals comes from the rising value of assets they already own. Increases (or decreases) in the value of these assets are known as unrealised capital gains (or losses).
Suppose you buy a share for $1 in 2025. By 2026, its value has increased to $3. The share has generated a capital gain of $2. If you sell the share, you realise the gain. If you continue to hold it, the gain remains unrealised.
For billionaires, unrealised capital gains on shares in companies, real estate and other valuable assets, such as artwork or classic cars, account for a large share of the growth in their wealth.
For example, over the past 10 years, the wealth of Australia’s 200 richest people has grown from $197 billion to $707 billion, according to the Australian Financial Review’s Rich List.
From an economic perspective, these unrealised gains increase a person’s purchasing power just as wages do for workers. The key difference is how they are taxed, with unrealised capital gains receiving preferential treatment.
The creation of capital gains tax worldwide corresponds to national debt worldwide. To make up the shortfall, governments brought in VAT to tax the poorer classes. Meanwhile, we still allow a massive loophole of borrowing against equity and not declaring that money income or capital gains. Zero taxes paid. So this leverage makes billionaires.
Any new money coming to any person should be income, and taxed as such. If we did that, nominal income taxes could be reduced to 20% for all, and we don’t need VATs.
Needless to say, this would massively improve the world economy.