MY MONEY

The winners and losers if Labor wins the federal election

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What if Labor takes power in this year's election? 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?

bill shorten labor federal election

Expect to hear a lot more before the election but, unusually, Labor has already provided details on both its priorities and some more controversial policeis.

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 self-managed 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.

Did you know?

The government's mid-year stocktake - officially known as the mid-year economic and fiscal outlook - included $9.2?billion allocated to "decisions taken not yet announced".

Most commentators speculated this was an election war chest that the Coalition would use to fund election promises such as further tax cuts. A Labor government could also use that money.

Best-case scenario

There are winners and losers with any change of government or, indeed, government policy. But before any measures are brought in, they'll have to run the usual gamut of public scrutiny, lobbying by those affected, possible legislative amendments and the usual political argy-bargy.

Worst-case scenario

Australia has had a long period of economic growth but if that were to reverse, some of Labor's policies could have more negative consequences than intended.

The wild card

The senate. If minor parties retain control of the upper house, there is no guarantee either party will be able to push its policies through unchanged.

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Annette Sampson has written extensively on personal finance. She was personal editor of The Sydney Morning Herald, a former editor of the Herald's Money section, and a columnist for The Age. She has written several books.
Comments
Peta
February 27, 2019 3.41pm

sometimes I wonder why I even bother to work?

Andrew
February 27, 2019 4.47pm

It is worth reading the many submissions to the Standing Committee on Economics on the Franking Credits issue, here:
https://www.aph.gov.au/Parliam...
You will see that, in addition to those who have SMSFs, there is a whole category of people who are placed in a new poverty trap by this proposed Labor measure. These are the people who have a dollar or more too much in assets to get the age pension and have modest shareholdings on which they depend for dividends and franking credits. Most of these will lose up to one third of income, resulting in a reduction to less income than the age pension that they cannot get.
I think this is called unintended consequences and Shorten and Bowen don't want to know about it.
The only solution, if the policy is enacted, is to spend the excess assets like crazy and claim the pension. What a terrible policy.

Bron Richards
February 27, 2019 6.55pm

Will labor have any actual Growth policies? My God. .....

Gwen Pusztay
February 27, 2019 7.59pm

How does Labor intend to overcome the provision of Section 51 (31) of the Constitution, which requires that what it is intending to do with some people's franking credits (ie hijack them) must be on 'just terms'. The plan is plainly discriminitory in that those on welfare and NGOs will be exempt. 'Just terms'? I don't think so.

Herman Koop
February 27, 2019 10.57pm

Andrew. If you rely on Franking credits for your income or part income, you are not self funded. Receiving a cash bonus for franking credits is no different from receiving a centrelink pension.

Andrew Butlin
February 28, 2019 9.15am

Herman, it is the same as the refund you get when the employer has deducted too much tax via PAYE. In both cases, a refund is made of a holding tax when it turns out that no tax is due. If I was making the same income from property rent or from bank interest, would you be recommending the government should seize 30% of it, even if my total income is below the tax threshold? Guess not.

Rod
February 28, 2019 9.53pm

Rod.
I've worked & saved all my life becoming a SFR leaving the pension for diggers, handicaped, single mums etc BUT as Andrew stated I've NO option other than buy a new car have a holiday & put my snout in the trough & give in to socialism. Makes you cry.

Angus Smith
March 12, 2019 10.40am

I am a SFR but do not believe that I am entitled to a refund from the franking credit, after all I receive a dividend from my share portfolio and if the franking credits were that important I would look at changing my investments

John Casburn
March 20, 2019 5.18pm

John Casburn March 20, 2019 at 6:18pm

My sentiments exactly, Angus. If these shareholders are making so much money from the franking credits of the company tax that it would seriously affect their income if they didn't get it, then they must have a large amount of shares and receive significant dividends.

A company is a separate taxable entity and can claim expenses from business operations offset against any tax it is liable to pay. To be fair if a part owner receives a franking credit from tax legitimately paid by the company to meet its tax liability (as we all have to unless exempt) it should be considered as income (paid by other taxpayers) in the hands of that person and they should be liable to pay tax on that amount.

That is what happens where an owner of a company (which pays its taxes) and pays the owner a salary, the owner has to pay tax on that amount, and cannot receive a franking credit from the company. Any excess amount coming to the owner from the company would be taxable as income.

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