TAX PLANS PUT TO THE REAL TEST

EVERYONE agrees Australia needs tax reform. A string of government inquiries have recommended options but nothing happens. Why?

Because tax reform is political suicide. John Hewson lost the “unlosable” 1993 election on his plans for a GST. It was eventually introduced by the Howard Government in 2000.

Now Bill Shorten and the ALP are throwing the tax reform dice again: franking credits, negative gearing and capital gains tax.

All were introduced for sound economic and financial reasons but are now being rorted, which is costing us taxpayers billions a year.

They shouldn’t be abolished but the rules need to be tightened.

Take negative gearing. It was introduced to assist investors to get over those early financial hurdles on their way to earning a positive return on which they’d pay tax. It was designed to encourage investors to supply rental properties for those who couldn’t afford to buy.

Negative gearing is where you borrow money to invest and the income from the investment is less than the costs – where rental income is less than loan interest and other expenses. This means you are making a cash loss that can be claimed against other income to lower your overall tax rate and payments.

Over the years there has been a big trend of investors (on high marginal tax rates) constantly refinancing their investment properties to stay permanently negatively geared and get the tax concession. The property never becomes positively geared or makes a profit.

It’s a tax lurk, costing us an estimated $4.5 billion a year.

Under the ALP, all existing negatively geared investments will continue under the existing rule.

But it will limit all future negative gearing to new housing.