An economic \u201cice age\u201d that froze one of the world\u2019s strongest economies for 30 years and locked entire generations out of work seemingly came out of nowhere.<\/p>\n
It was the late 1980s \u2014 a decade marked by rapid globalisation and corporate excess around the world \u2014 and Japan appeared unstoppable.<\/p>\n
Known as a powerhouse in technology and innovation, the nation of 122 million not only had a stock market that was booming, but its banks had become some of the largest in the world and its property market was running red hot.<\/p>\n
It was this last feature of the economy, housing, that was beginning to really take a life of its own.<\/p>\n
<\/p>\n
At the height of the frenzy, Japan\u2019s total property market was estimated to be worth four times the value of the entire United States. The grounds of the Imperial Palace in Tokyo were supposedly worth more than all the real estate in California.<\/p>\n
Then one day, as the decade came to an end, the bubble burst in spectacular fashion.<\/p>\n
Families who brought a modest suburban home in 1989 for the equivalent of $1.5 million watched its value collapse by 80 per cent. <\/p>\n
Trapped in massive negative equity, they spent the next three decades paying off exorbitant mortgages for properties that were worth far less than what they had paid for them.<\/p>\n
Young people were smashed perhaps more than anyone as the stock market crashed by 60 per cent in just three years.<\/p>\n
Millions of young Japanese university graduates stepped out of high-flying degrees and straight into a ghost town.<\/p>\n
They were forced into low-paid, temporary \u201cfreeter\u201d jobs \u2014 part-time, temporary, or freelance positions in shops and cafes \u2014 because they were unable to secure permanent corporate work.<\/p>\n
It meant that millions couldn\u2019t afford to buy homes, marry, or have children. Japan\u2019s birthrate plummeted, and \u201cparasite singles\u201d \u2014 adults in their 30s and 40s still living in their childhood bedrooms \u2014 became the norm.<\/p>\n
Wages didn\u2019t just stall, they collapsed. Everyday citizens stopped spending, terrified of taking financial risks. Cash was stashed in home safes rather than invested, and entire high streets were replaced by discount shops as the economy ground to a halt.<\/p>\n
It took a staggering 34 years for Japan to dig itself out of the economic disaster now known as the \u201clost decades\u201d. In 2024, the nation\u2019s stock market finally surpassed its 1989 peak and even today it is still trying to bounce back from the generational slump.<\/p>\n
A chilling warning for Australia<\/p>\n
Now, a leading investment expert has warned Australia is laying the groundwork to repeat Japan\u2019s exact mistakes \u2014 a process known by economists as \u201cJapanification\u201d.<\/p>\n
It\u2019s a term that describes economies where trapped capital, ageing incumbents and weak productivity growth reinforce each other over time.<\/p>\n
Chris Brycki, chief executive and founder of investment platform Stockspot, says Australia is showing dangerous parallels to the pre-crash Japanese economy of the late 1980s.<\/p>\n
\u201cI think there are a lot of similarities to Japan in the late 80s and early 90s, where they had obviously come off the back of a big property boom, but then saw a big drop in productivity,\u201d Mr Brycki told news.com.au. \u201cMoney got trapped in legacy assets.\u201d<\/p>\n
While Japan\u2019s pain is now in the history books, Mr Brycki said Australia\u2019s current trajectory could trigger a similar multi-decade period of underperformance if capital remains locked away in unproductive corners of the market.<\/p>\n
\u201cIn Japan, what it led to was just a long period of stagnation, and the country went backwards compared to the rest of the world for 20 or 30 years,\u201d he said.<\/p>\n
\u201cThe warning in all of this is that if you incentivise everyone to just leave money in old, grandfathered property assets and shares that pay dividends over capital growth, money is not going to flow into those new areas of the economy that are going to create jobs.\u201d<\/p>\n
The tax trap keeping Australia stuck in the past<\/p>\n
At the heart of the issue, according to Mr Brycki, is a tax framework that penalises innovation while protecting legacy wealth.<\/p>\n
Under current rules, existing investors holding negatively geared investment properties or primary residences face almost no incentive to sell because their assets are protected under older tax regimes.<\/p>\n
At the same time, the tax treatment of shares heavily favours big dividend payers over high-growth companies, while Treasury rules restrict investors from properly writing off real losses.<\/p>\n
\u201cIf you already own a negatively geared investment property or you already own a primary residence, there\u2019s very little incentive to sell it because they\u2019re protected under the old regime,\u201d Mr Brycki explained.<\/p>\n
\u201cSo there are just a few dynamics of the tax changes that lead to the wrong impacts in the economy, which is money getting stuck in old legacy assets not getting recycled into new assets.\u201d<\/p>\n
Instead of funding cutting-edge biotechs, robotics, or artificial intelligence start-ups, Australian capital is funnelled straight back into established corporate giants.<\/p>\n
\u201cIf it continues this way, we might see a continuation of old legacy businesses, like the BHPs, Telstras, and Woolworths, money coming in at the expense of new innovative businesses and start-ups,\u201d he warned. \u201cThat\u2019s going to make us less competitive globally.\u201d<\/p>\n
The structural disincentives are so severe that Australia risks driving its best and brightest entrepreneurs offshore to countries like Singapore, New Zealand, or the United States.<\/p>\n
Mr Brycki pointed out that while global tech giants like Amazon and NVIDIA drove decades of economic prosperity in the US, Australia\u2019s tax setup makes it almost impossible for similar companies to make a splash locally.<\/p>\n
\u201cIt is such a disincentive, and the government recognises this,\u201d Mr Brycki said. \u201cThe tax essentially doubles if you\u2019re starting a business, and we become completely uncompetitive globally.\u201d<\/p>\n
Adding to the irony, foreign investors often face far lower tax hurdles when investing in Australia than local citizens do.<\/p>\n
\u201cIf you\u2019re a Singaporean investing in Australia it\u2019s fine, but for an Aussie, there\u2019s no reason to go and buy some speculative mining shares or technology shares when your effective tax rate could be over 80 per cent in a pretty normal sort of portfolio where you\u2019ve got some winners and some losers,\u201d he said.<\/p>\n
\u201cIt\u2019s like a double disincentive. If you\u2019re a founder, you\u2019re more likely to set up in another country… and then for any investors in the country, you\u2019re unlikely to invest in them because the tax is worse.\u201d<\/p>\n
\u2018It is already happening\u2019<\/p>\n
This economic shift isn\u2019t just a theoretical threat \u2014 the data shows Australian investors are already changing their behaviour in real-time.<\/p>\n
Stockspot\u2019s internal data reveals a dramatic movement of capital away from growth-oriented investments and towards defensive, income-generating vehicles like dividend ETFs.<\/p>\n
\u201cWe\u2019re seeing our clients put more money just into the income-styled portfolios \u2014 the ones that aren\u2019t really geared for capital growth that are paying more income,\u201d Mr Brycki said.<\/p>\n
\u201cLast month we saw five times as much growth in money coming into that sort of style rather than the traditional growth-type portfolio. So it\u2019s already happening.\u201d<\/p>\n
Because exchange-traded funds (ETFs) pool investments together, they offer tax-netting advantages that individual stock picking or small-cap fund managers simply cannot match. <\/p>\n
But because most ETF dollars flow directly into major indices like the ASX 200 or ASX 300, the money inevitably ends up back in Australia\u2019s largest banks and miners rather than speculative, job-creating start-ups.<\/p>\n
RBA\u2019s warning <\/p>\n
Mr Brycki has warned of the \u201cJapanification\u201d of Australia for several weeks. However, he said the warning became starker this week as the RBA acknowledged the growing distortion in investments.<\/p>\n
This week, internal RBA documents analysing Labor\u2019s tax changes were revealed in response to a freedom of information request.<\/p>\n
It said the capital gains tax shift \u2014 from a 50 per cent discount model to a cost base indexation, paired with a 30 per cent minimum tax on net capital gains \u2014 could deter investment in high-growth companies, including start-ups, and encourage investment in lower-growth, higher dividend-paying firms.<\/p>\n
\u201cBy making investment less attractive for some investors, these changes have the potential to increase the cost of capital for Australian businesses,\u201d RBA analysts noted.<\/p>\n
\u201cThe aggregate allocation of capital may tilt more towards sectors with more mature assets that generate steady income (e.g. utilities), and away from firms where capital gains comprise a large share of expected returns (e.g. start-ups).\u201d<\/p>\n
Mr Brycki said the RBA analysis confirms what he has been warning about for several weeks.<\/p>\n
\u201cThe RBA is now basically confirming that the tax system incentivises money to chase dividends and stable businesses rather than go for growth,\u201d Mr Brycki said.<\/p>\n
Mr Brycki isn\u2019t the only one raising concerns.<\/p>\n