The hidden CGT impact millions of Australians are ignoring

Everyone is talking about the impact on property regarding the proposed changes to capital gains tax (CGT) to be announced in the federal budget next week, but almost no one is talking about the impact on shares, which is a much bigger deal than people realise.

If the government cuts the current 50% CGT discount to 33% or even 25%, investors, ETF holders and even crypto investors are likely to be hit too.

This changes the equation for millions of Australians because, unlike property, the sharemarket is often the only realistic entry point for younger Australians trying to build wealth.

Many cannot afford investment properties, so they turn to shares, ETFs and long-term investing to get ahead outside of wages alone.

Now that path may become far less attractive.

Australians already take risks by investing their capital and bearing the losses when markets fall. Yet when they finally make a profit, the government now wants a larger cut of the reward.

The irony of this is hard to ignore.

Years of excessive government spending helped fuel inflation, which pushed interest rates higher and crushed household budgets.

Now, after Australians have already been squeezed by rising living costs, the proposed solution appears to be taxing investment gains even harder.

So, what does the change to CGT mean for investors? If the reward for holding long-term keeps shrinking, Australians may start questioning why they should sit through major downturns just to receive less favourable tax outcomes at the end of it.

The traditional buy-and-hold no matter what approach may become harder to justify.

Instead, this could push more investors toward becoming active risk managers rather than passive holders.

Protecting capital during major market downturns, taking profits when markets become overheated and managing tax outcomes more strategically may become increasingly important.

Because once investing becomes less rewarding, people do not just make fewer trades; they start changing the entire way they invest.

Whether you are young or nearing retirement, Australians who have never thought about actively managing their investments may soon be forced to learn because in this environment, simply holding and hoping may no longer be enough to maximise long-term returns.

What are the best and worst-performing sectors this week?

The best-performing sectors include Materials, up more than 4%, followed by Financials, up more than 2% and Industrials, up more than 1%.

The worst-performing sectors include Energy, down more than 6%, followed by Consumer Staples and Utilities, both down more than 2%.

The best-performing stocks in the ASX top 100 include Capricorn Metals, up more than 15%, followed by IGO Limited and Greatland Resources, both up more than 9%.

The worst-performing stocks include Light & Wonder Inc, down more than 10%, followed by A2 Milk, down more than 9% and Woodside Energy, down more than 7%.

What's next for the Australian stock market?

The All Ordinaries Index bounced back strongly this week with a solid gain of more than 1.5% by Thursday's close.

More importantly, the index once again found support around the 8900 level and refused to trade lower, which is a reassuring sign for the broader trend.

The week actually started off subdued, but momentum built significantly in the latter half as oil prices eased and renewed hopes of a ceasefire in the Middle East lifted investor sentiment.

This is exactly why I have continued to view this pullback as more of a manufactured crisis rather than a fundamentally broken market.

The headlines have certainly created fear, but underneath it all, many Australian companies remain in strong financial shape.

What is also helping our market is the continued strength in commodities, which is providing a much-needed tailwind for the Australian economy and the sharemarket alike.

That was reflected again this week, with the Materials sector leading the charge, while Energy pulled back sharply as oil prices cooled.

Once again, the market now turns its attention toward the key 9200 level.

This has become the major battleground for the All Ords, but there is an interesting characteristic about markets worth remembering, and that is the more times price tests a resistance level, the more likely it is to eventually break through it.

Each test tends to weaken the sellers sitting there, and if momentum continues to build, the market may finally have enough strength to push through.

One thing to be mindful of, however, is seasonality.

May has already significantly outperformed its historical average, and June is typically a softer month for our market, which could slow things down a little.

Right now, this feels like a catch-up rally after the sharp sell-off earlier in the year.

The broader picture remains constructive.

The market appears to be recovering, and this could very well be the turning point many investors have been waiting for, assuming, of course, we do not see a major escalation overseas.

I would also keep a close eye on China, because any stabilisation or recovery there could become another important driver for our miners and resource sector moving forward.

After the volatility we have had this year, it is worth appreciating the small wins.

The market is holding up far better than many expected, and that says quite a lot about its resilience.

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