Geoff Wilson's first rule of investing is pretty simple: don't lose money.
If you want to know the second and third rules, refer back to the first. While the particulars of his investment philosophy have evolved over the past 50 years – and more on that in a bit – that first rule is sacrosanct. And it’s exactly what led him to the vanguard of a recent (and very public) battle with the Labor government over its Division 296 tax proposal.
"It was shocking," he says. "It was illogical. It was flawed. It was, as Gerry Harvey put it, ‘Stupidity of the highest order.’"
If you're unaware, Div 296 refers to a proposed amendment to Australia’s income tax assessment policy. It was bundled into the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and would, if implemented, apply additional 15% tax on earnings attributable to the portion of an individual’s super balance above $3 million.
When Wilson was first alerted to the proposal, he declined to comment: "The idea, as I understood it, was that it was trying to bring more equity into the super system. I didn’t see it as our right to talk about that."
The following day, though, he (along with the rest of the country) found out that the $3 million threshold wasn’t indexed to inflation. Worse, the earnings calculations included both realised and unrealised capital gains. Losing money, it appeared, was part of the plan.
“Now I had something to say.”
Alea iacta est
Thus began the two-year fracas. On one side, Wilson and his allies – including Paul Keating, aforementioned retail mogul Gerry Harvey and former Treasurer Josh Frydenberg – and on the other, an Albanese Government increasingly determined to dig its heels in.
Given the Coalition’s total opposition to the tax – Nationals Senator Matt Canavan said they’d “fight to the death” over it – Wilson’s camp was framed as transparently partisan. Deputy Prime Minister Richard Marles, for example, suggested that Div 296 opponents were orchestrating a “smear campaign.”
Wilson refutes this accusation, arguing that the goal was always to be “apolitical about it.”
“Back when the Coalition was in,” he says, “we beat them over the head on other things like allowing virtual-only AGMs. They tried to make that happen and we railed against it. We succeeded. This was no different.”
The crux of his argument, as detailed in a Wilson Asset Management submission from February 2024, was that Div 296 would “force superannuants to sell illiquid or volatile assets to … [pay] tax on gains they may never receive.”
Illustrating the problem, the submission noted that in the 2007 financial year, the Australian stock market increased by 30.3%. Had Div 296 been around back then, investors would have incurred a substantial tax liability just before the market fell by over 50% during the GFC.
Treasurer Jim Chalmers, meanwhile, maintained that the proposal was a modest change that would impact “a tiny sliver of the population” – 0.5%, by his estimations – and that it would only mean a “slightly less generous” tax concession for those affected.
To Wilson, though, it was an affront to the very concept of wealth creation.
“As an investor,” he says, “what do you want? You want patient, long-term capital. We’re all taught about the benefit of compounding. And then you’re bringing in a tax that discourages taking risk.”
He continues: “Effectively, it penalises investors for taking risk because the more risk they took, the more volatility they’d experience; your investment might go up a lot, you pay a tax on it and then it might fall a lot.
“So it would force a lot of that money into low-risk, low-volatility investments; people didn’t want to get caught out paying a huge tax bill. It was counter to the whole purpose of taking risk and investing.”
To the mattresses
Now, to be fair: that was kind of the point. According to former Treasurer (and current Labor national president) Wayne Swan, super tax concessions had become a tax avoidance mechanism for millionaires, detracting from their intended purpose.
Speaking on the Today Show in May this year, Swan argued that the government “shouldn’t be giving concessions to people who have many millions of dollars squirrelled away well before retirement to engage in other investment activities.”
Echoing Chalmers’ statements, Swan added that the new tax represented a “very modest change” that would only impact “very large superannuation balances.”
Wilson dismisses this line of reasoning on two fronts. First, he says, the lack of indexation could put any long-term super saver in the crosshairs.
He explains: “It wasn’t people in the retirement phase who were going to be squeezed by this. Because it wasn’t indexed, the 25-year-old nurse or the 25-year-old social worker could end up getting taxed on unrealised gains before retirement if they went through the $3 million mark.”
And then there were the “second-order effects” of the proposal.
“You’ve got to remember what that $1 trillion pool of SMSF capital is doing,” he says. “It’s taking significant risks. I talked to startups on the Sunshine Coast, and they were saying that 40-50% of the money they get is from SMSFs.
“Even if that only makes up a small percentage of all the money in startups – well, if you don’t get that first bit of capital, you don’t end up like Atlassian or Canva. If you can’t get funded, you don’t exist.”
Indeed, Wilson found that Div 296 was causing funding to dry up well even before it could become law.
“No one wanted to allocate money in their SMSF to those kinds of investments,” he says. “The lifeblood of the Australian economy goes back under the mattress.”
A bitter peace
As you probably know by now, though, the most controversial elements of Div 296 won’t see the light of day. Just over three weeks ago, the government announced substantial changes to the proposal, which included delaying the start date to 1 July 2026, indexing the $3 million threshold and, crucially, no longer taxing unrealised gains.
So: after a protracted fight with a “bloody-minded” Jim Chalmers, Geoff Wilson claimed a sort of victory.
However, he worries that the damage has already been done. He argues that the government’s dogged insistence on getting its super tax through parliament reflects a widening gap between policymakers and the modern Australian investor.
And as Wilson discovered, those investors are paying attention.
Before the Div 296 campaign, Wilson was never an avid user of social media. But partway through the fight, he visited the US and met up with New York fund manager Bill Ackman. At the time, Ackman was planning to raise US$25 million.
“I asked him, ‘How are you going to do it?’ And he said, ‘I’m going to tweet about it.’”
At that point, Wilson realised there might be something to all this social business after all. So he “reinvigorated” his Twitter account and finally – begrudgingly – joined LinkedIn. And his initial forays led to some unlikely alliances.
“I found out that the crypto world was very much on our side in all of this,” he says. “Remember, Bitcoin has had some big drawdowns, and they tend to happen in the six-month period to December. So if it happens to be at a record high at the end of June, you pay the tax and then it falls 80%. At that point, your super fund is insolvent!”
His interactions with the crypto set – and other extremely online investor cohorts – revealed that there were many younger Australian investors who’d have something to lose if an unrealised capital gains tax came back on the menu.
“I think that something like 7% of new super funds set up have crypto investments,” he says.
Wilson recounts talking to a 30-something who’d set up his own SMSF at 26. He’d contributed up to the cap every year and didn’t trust real estate as an asset class, preferring to invest elsewhere – including in crypto.
“This young guy had aspirations,” Wilson says. “His parents had come from overseas; he was a first-generation Australian. He didn’t trust housing. Labor’s tax announcement really shook his faith in the system.”
The disfavoured
Wilson’s story shouldn’t be unfamiliar to Advisely readers. As we’ve previously discussed, Iress and Deloitte’s The Big Shift research projected that nearly half (43%) of Australians between 45 and 54 will not be homeowners by 2036. Deterred by soaring house prices, these Australians represented a growing cohort of “customers [in need of] financial advice to build wealth through alternative means.”
“One of the big problems in Australia is that we’ve had wage inflation of 2-3% but asset inflation of 10%,” Wilson says. “So every year that a worker – a young person – doesn’t buy a house, they’re 7% worse off.”
However: as a noted chaotician once said just before his work trip was upended by a T. rex, life finds a way. Younger investors, bereft of opportunities to get into the housing market, are pursuing a wholly different kind of Australian dream.
Wilson sees this paradigm shift as inexorable, and something current and future governments would do well to heed.
“When I grew up,” he says, “the idea was to put your money in a bank. You had to be a regular saver so you could build up a deposit, and then the bank manager would allow you to get a loan to buy a house. It was all about getting a track record of saving so you’d get the anointment of the bank manager. Quite bizarre, isn’t it?
“Today, I think what a lot of young people understand – which I didn’t necessarily understand when I was growing up – is markets. Because of crypto, for example, they understand volatility.”
Even if every younger investor is sporting diamond hands, though, Wilson still thinks they’re in need of guidance and advice – and this is another area where he believes successive policymakers have a lot to answer for.
“There’s been terrible over-regulation of financial advice,” he says. “And what has it achieved? How did it go at stopping Shield and First Guardian?”
Wilson argues that, despite the laser focus on regulating for the “worst end of the bell curve,” the primary achievement of Australian advice regulation is “cutting off the people with smaller pools of capital from getting good quality advice.”
“It’s just become too cumbersome and expensive,” he says. “And it probably has the effect of pushing people to higher-risk plays, whether it’s crypto or something else. They can’t get access to anything else, they can’t afford advice, so they just end up throwing darts at the board.”
Perfect day
For the benefit of anyone throwing darts, then: does Wilson have any wisdom to impart about long-term wealth creation?
Perhaps unsurprisingly, rule one hasn’t changed over the decades. “It’s still about not losing money,” he says. “When you’re putting together a portfolio of stocks, it’s very important to protect your downside.”
That said, he’s no longer as keen on market timing as he once was: “If you’d asked me 30 years ago, I probably would have been much bigger on trying to pick the bottom and sell the top. But my current thought process is different: it’s ‘time in the market’ rather than ‘timing the market.’”
Explaining what this means, Wilson recounts the time when WAM Global lead portfolio manager Catriona Burns brought a book into the office; it was about US market movements over the past 20 years.
“What the book showed you,” he says, “is that if you missed the one best day in the year for 20 years – so you only missed 20 days in 20 years – your return over that period of time would have been effectively zero.”
“I’ve been around the market for a long time,” he continues, “and it made me realise something. I've seen the ‘87 crash, I’ve seen the Asian financial crisis, I’ve seen the GFC, COVID, the Trump tantrum – it’s always something.
“Back in ‘87, everyone knew the market was expensive, but it went up another 50%. And yeah, it fell 60% in the latter part of the year, but it had still gone up further. So to me, if you can buy stocks you don’t lose money on, you can be prepared to ride out that volatility.”
To wit: right now, Wilson sees some signs of excess in the market.
“But then,” he says, “I could have been nervous two years ago as well.”
Advisely Team
