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Coalition v Labor: The Election2019 policies that affect you

Glenn Freeman and Lex Hall  |  16 May 2019Text size  Decrease  Increase  |  
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Tax reform, housing policies and franking credits changes are some of the key battlegrounds as Australians head to the polls in what shapes as one of the hardest fought election campaigns in recent history.

Election 2019 shapes as one of the tightest. As it stands, the polls give Labor a 51-49 election-winning lead over the incumbent Liberal-National Coalition under Scott Morrison, who was tapped to oust Malcolm Turnbull in a leadership coup last August. 

Despite the turmoil in the Coalition ranks, Morrison remains preferred prime minister compared to his challenger, Labor leader Bill Shorten, who has led a campaign based on tax cuts, rebates, and increases in social spending aimed at lower-income voters. Labor’s program also vows to raise the minimum wage, increase penalty rates and scrap cash refunds for excess franking credits.

If Shorten wins he will be Australia’s eighth prime minister in 12 years – an ignominious record for a country that has an enviable – but increasingly shaky – record of 28 years of recession-free living. Saturday’s election takes place against a backdrop of slowing economic and wages growth, rising unemployment, soaring household debt, and of course waning property prices.

Labor’s proposed curbing of franking credits has taken centre stage ever since it was launched last year. But investors are focused on other reforms too, especially changes to income and company tax, negative gearing and superannuation.

In part one of our coverage, we will compare the Liberal-National Coalition and the Australian Labor Party and their policies in taxation, capital gains tax and superannuation.
Tomorrow, in part two of our coverage, we will bring you Morningstar equity analysis coverage – and investment ideas to consider – on the following topics:

  • Franking credits
  • House prices, negative gearing and capital gains tax
  • Renewable energy and climate policy
  • Private health insurance
  • Childcare.

Taxation and capital gains tax

Liberal-National Coalition

Key to the Coalition’s tilt at a third term is a $158 billion 10-year income tax cut package. As of 1 July 2019, the Coalition government will embark on a plan to reduce the tax burden on individuals, aiming to reduce the top tax bracket to 30 per cent by 2024-2025.

It will also raise the threshold for the 19 per cent tax rate from $41,000 to $45,000 in July 2022; and flatten tax brackets so those earning between $40,000 to $200,000 pay a marginal rate of 30 per cent from 2024.

The Coalition vows to immediately double the low and middle-income tax offset to benefit 10 million taxpayers including 4.5 million middle-income earners who will receive the full $1,080.

Australian Labor Party

Labor vows a further $1.05 billion over four years to increase tax cuts for 3.6 million people earning less than $48,000, including a $350 tax cut for workers earning up to $37,000.
According to Labor, 10 million Australians will get “the same or bigger tax cut” than under the Coalition. But Labor opposes the second and third stages of the Coalition’s income tax plan, including the flattening of tax brackets from 2024.

Negative gearing

Liberal-National Coalition

The Coalition intends to retain negative gearing as it currently stands.

The current system on capital gains tax, introduced under the Liberal government of John Howard in 1999, means assets held for more than 12 months attract a 50 per cent capital gains tax discount. This allows investors to reduce and defer personal income tax – this means that half the profits from the sale of an asset, such as a house, are untaxed.

For example, if an investor made a profit of $500,000 from the sale of a house, only $250,000 of this would be taxed. This policy led to big jump in property investment in Australia.

Under the current system, a property investor can deduct all of his or her investment-related net losses against all other income – including salary, wages and any other income sources.

Australian Labor Party

Labor will abolish negative gearing for investors who buy existing houses from January 2020. Investment properties bought before then will still attract negative gearing, as will investments in new properties.

This means a taxpayer investing in a newly built house can continue to deduct net rental losses against total assessable income.

Though proposed changes to negative gearing have attracted more attention due to the likely effect on housing, AMP Capital economist Shane Oliver believes Labor's proposal to halve the capital gains tax discount to 25 per cent will have a bigger impact.

"This plan to double capital gains tax on investments held for more than 12 months is aimed at improving housing affordability, which means lower prices.

"Such changes would make it less attractive to invest in residential property," Oliver said in a January note, when he also suggested it was likely already reducing investor demand for houses.

Superannuation

Liberal-National Coalition

Under the current tax system, effective as of 1 July 2017, non-concessional superannuation contributions are capped at $100,000 - having already been reduced from $180,000 in the 2017 budget.

Since 1 July 2018, individuals have also been able to make so-called "catch-up" contributions to superannuation, by accruing any unused concessional cap amounts for up to five financial years – providing the total superannuation balance is less than $500,000.

Introduced at the same time, a blanket rule restricting the eligibility for tax-deductible contributions of up to $25,000, including:

  • employer contributions
  • salary sacrifice contributions
  • any personal deductible contribution.

In addition, individuals who earn $250,000 or more pay a tax surcharge of 15 per cent on concessional contributions – employer and personal deductible contributions – bringing the total tax levied on their super contribution to 30 per cent.

Labor

Labor vows to reduce the non-concessional contribution cap to $75,000 a year. It would also reduce existing bring-forward provisions – similar to the aforementioned catch-up contributions – to $225,000 from $300,000 over three years.

The existing $1.6 million cap would remain in place.

Labor proposes to abolish the $25,000 catch-up provision, with no alternative plan announced.

It has also proposed to reduce the aforementioned $250,000 limit on concessional contributions to $200,000 – meaning higher income earners will be subject to the additional tax.

However, this segment would still receive a tax benefit, because contributions are taxed at 30 per cent instead of the highest marginal rate of 47 per cent.

As for how the election will affect the share market, some observers see the changes taking place as already factored into equity prices.

Paul Taylor, portfolio manager, Fidelity Australian Fund at Fidelity International, notes that the problems clouding the equity market last year – the economy, a US/China trade war, Chinese growth, interest rates and the residential housing market – largely remain.

“Increasingly market commentators were thinking we were likely to move into recession in 2019, market participants had high cash levels and consumers were focused on bank deposits,” says Taylor. “Now here we are five months on, still worried about all the same issues but the market has moved considerably higher.

“Even though the environment still feels very negative the equity market goes up. This really means that these concerns are already factored into the equity market.”

are editors at Morningstar Australia.

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