Tax, Superannuation & The Economy: What Does The Election Result Mean?
Following the shock Federal election result on Saturday night, and the return of the Liberal-National Coalition to power, it’s timely to revisit some of the pre-election policies that are likely to take effect in the near future, and a reminder of those Labor policies that won’t see the light of day, at least for the foreseeable future.
Labor of course ran with some controversial policies that may well have proved their undoing, with an overall approach to redistributing wealth from and to certain groups, with those likely to suffer having their say at the polling booths. A few weeks back we outlined the key policies of each of the major parties, with the following Labor policies no longer applicable:
- Lowering of the superannuation non-concessional contribution cap from
$100k to $75k
- Removing the ability for those making personal superannuation contributions to gain a tax deduction
- Prohibiting borrowing by self-managed superannuation funds
- Restricting negative gearing so that it applies to new buildings only
- Restricting the ability of taxpayers to claim excess franking credits as a cash refund
- Taxing all distributions to adults by discretionary (family) trusts at a minimum 30%
- Reducing the Capital Gains Tax discount from 50% to 25%
- Restricting deductions for personal tax-related expenditure to $3k
The Liberal Party on the other hand had flagged very little change in any of those areas, but will now look to rollout the changes announced on Budget night back in April.
The key changes we can anticipate in the near future include:
- Tax relief in the current financial year for low and middle-income earners of up to $1,080 each
- A one-off payment to assist low income earners with energy bill payments, to be made in June 2019
- The commencement of a move to a ‘flatter” income tax structure, with gradual changes in tax thresholds over the next 4 years
- An increase in the instant asset write-off from $25k to $30k
Regarding a more recent announcement (just last week) it will be interesting to see how soon we see the introduction of Scott Morrison’s ‘First Home Loan Deposit Scheme’, ‘which will allow eligible first home buyers with an income of up to $125,000 (or $200,000 for a couple) to purchase a home with a deposit as low as 5%. Of further interest will be how banks act in regard to this, and the impact it might have on the pricing (i.e. interest rates) for loans under this scenario.
From the perspective of the economy overall, it now seems highly likely that the Reserve Bank will cut the official cash rate in June or July, with the banks likely to pass on any cut in full. Many felt that the Reserve Bank had held off any rate cut in recent months so as not to be seen to be impacting the election result, but with recent employment figures lower than expected, now is seen to be the ideal time for the RBA to cut rates.
We have already seen a ‘bounce’ in the Australian share market this week, although with the ASX trading at an 11-year high, and some ordinary economic indicators of late, many aren’t as positive about the prospects of the share market in the medium-short term.
Overall, it’s fair to say that the election result will see far less policy change as opposed to the scenario had Labor been victorious. How this plays out for the economy in the medium-long term remains to be seen, especially with the economic threats posed by the US-China trade war, and the impact that may have on the Australian dollar.