What if...:
As with any change of government, there are likely to be financial winners and losers
DO I REALLY NEED TO WORRY ABOUT THAT?
Politics is a moving game but the opinion polls indicate a change of government is definitely a prospect. Labor has announced several policies that, if implemented, could affect our personal finances.
SUCH AS?
Expect to hear a lot more before the election but, unusually, Labor has already provided details on both its priorities and some more controversial polices. In October, it released its Fair Go Action Plan detailing five policy areas it will pursue if it wins office:
• Increased funding for schools and hospitals. It is also committed to ending the freeze on Medicare payments.
• Easing pressure on family budgets including tax cuts for average workers, guaranteeing pensions, capping private health insurance premium increases at no more than 2% for the next two years, regulating power prices and levelling the playing field for first home buyers.
• Better deals for workers, including restoring penalty rates, cracking down on dodgy labour hire companies and the use of sham contracting and casual employment arrangements, cracking down on the abuse of 457 visas, protecting local manufacturers and closing the gender pay gap.
• Investing in cheaper, cleaner energy.
• Building a stronger economy through increased infrastructure spending and closing tax loopholes used by the wealthy and multinational companies.
TAX MEASURES
As well as targeting multinationals using tax havens, Labor has said it will also stop the use of family trusts to avoid tax by introducing a minimum tax rate of 30% on trust distributions to beneficiaries aged 18 or more. It also plans to cap deductions for the use of accountants preparing personal tax returns to a maximum of $3000, and will not proceed with the government’s future tax cuts for higher income earners, instead increasing the top marginal tax rate by 2% until 2022-3. Labor also plans to allow a higher tax offset for those earning up to $90,000.
In October it agreed to support the coalition government’s plan to reduce the company tax rate for businesses with a turnover of up to $50 million to 25%.
NEGATIVE GEARING AND CGT
In a move intended to make life easier for first home buyers, Labor announced in 2016 that it would abolish negative gearing on existing homes bought after a date yet to be set. Negative gearing would still be
allowed for investors buying new properties and those with existing negatively geared investments would be allowed to continue. Since the announcement, however, the housing market has fallen and loans have become harder to get as lenders tighten their standards following the royal commission.
Jonathan Philpot, HLB Mann Judd Sydney wealth partner, says this has already sidelined many investors and he would expect to see further weakness in the market if the changes come in. He says if fewer rental properties were available as a result of the changes, this could force rents up and see more investments becoming positively geared.
Labor also said it would reduce the capital gains tax discount from the current 50% on
investments held for at least 12 months to 25%. Again, existing investments would be exempt, which Philpot says could result in a rush by investors into growth assets such as shares before the rules change.
However, he says even with the reduced discount, growth investments will still provide tax advantages over investments such as cash and bonds. He says investors will need to consider the most appropriate ownership structures for investments if the changes come in.
FRANKING CREDITS
Perhaps Labor’s most contentious plan is to scrap refunds of excess dividend imputation credits for investors who are not receiving a welfare benefit. Philpot says this will also disadvantage selfmanaged superannuation funds with members in the pension phase as their earnings are currently tax free and they receive a refund of any imputation credits. Philpot says larger funds with members in the accumulation phase may be able to use all the credits to offset tax.
SUPERANNUATION
Labor has said it is still committed to policies announced in its 2016 super package. These included lowering the annual non-concessional contributions cap from $100,000 to $75,000 and lowering the income level at which super contributions are taxed at 30% (rather than 15%) from $250,000 to $200,000. But it would ban future borrowings by self-managed funds.
There have also been indications it may abolish measures introduced by the present government such as allowing catch-up concessional contributions and allowing everyone to claim deductions for personal contributions within the limits.
In policies to improve super for women, Labor also intends to abolish the minimum $450 a month earnings limit for employer super contributions and extend super contributions to parental leave payments.
Annette Sampson has written extensively on personal finance. She was personal finance editor with The Sydney Morning Herald, a former editor of the Herald’s Money section and a columnist for The Age.
She has written several books.