That old line that “a week is a long time in politics” was never more true than in the case of Scott Morrison’s surprise election win on May 18.
After weeks of argy-bargy about abolishing franking credits for zero taxpayers, as Labor had proposed, in the space of 24 hours we saw Labor lose the election and drop the controversial proposal like a hot rock.
Indeed Chris Bowen, the Labor shadow treasurer, subsequently volunteered and then un-volunteered to bid for the job of Leader of the Opposition.
There’s an argument that he couldn’t get the numbers because, as architect of that proposal, he would find himself carrying too much baggage to be effective.
That’s a bit harsh but the abolition of franking credits is now right off Labor’s radar.
There remains a philosophical question about the logic of giving money to people who don’t pay tax but the immediate reality is that the policy is as good as dead, taking the philosophical debate with it.
And while that’s clear good news for retirees in pension mode, there’s a lot of positive news for wage earners, particularly the 10 million earning between $48,000 and $90,000 a year.
Treasurer Josh Frydenberg is pushing to get the April Federal Budget’s tax cuts through Parliament, if necessary by recalling the House before July 1.
That said, the Government is comfortable with the notion of giving those 10 million taxpayers the cuts (worth up to $1080 per year for a single, or up to $2160 for a dual income family) retrospectively after July 1 if that early recall doesn’t happen.
To remind you, some tax relief was legislated back in 2018 and will deliver an offset worth up to $530 a year. Indeed the Coalition said it would lift that maximum by another $20 to $550 if it was returned to power.
The 2018 cut has been calculated at $144 billion over the next ten years, on top of which the 2019 budget has promised $158 billion in tax cuts, ideally legislated by July 1 but don’t hold your breath.
Other than that, there are quite a few minor goodies that many people assumed would never happen, on the assumption that Bill Shorten was going to win the Election and no Coalition Budget measures would ever be passed into law.
For instance, the Coalition will abolish the work test for people making voluntary super contributions who are aged 65 or 66. Without those, they would have had to prove they were gainfully employed for at least 40 hours over a period of not more than 30 consecutive days during the financial year: a low bar, but a bar just the same.
Under the “bullet dodged” heading comes news that anyone with a taxable income about $180,000 will no longer be affected by the Labor proposal to increase taxes at that level.
Home investors will of course avoid any changes to negative gearing, on the same basis that it was a Labor proposal. It’s worth noting that it had two major excisions to soften the blow: one, it was grandfathered and two, investors could still negatively gear new property. Anyway, it’s not happening.
The biggest boost to housing, aside from the positive effects for borrowers of a likely 25 basis point interest rate cut by the Reserve Bank, will be the $500 million First Home Loan Deposit Scheme scheduled to start on January 1.
That effectively has the Government guaranteeing that element of a home loan which in the past would have demanded mortgage insurance. Meaning, people with a 5 per cent deposit rather than a 20 per cent deposit would effectively have 15 per cent of their mortgage insured by the Government. However there will only be 10,000 policies offered and what’s more, we have yet to see what interest rate the lenders would be happy with in such a situation.
The catch to consider is that the keen young borrower would be asking the bank for a 95 per cent mortgage, with its accompanying higher total to repay.
Conclusion? There’s more good news for older people than younger in this election result, which is a relatively standard outcome nowadays.
By Andrew Main, www.einvest.com.au.
This article is the opinion of the Andrew Main and is not financial advice. Speak to your financial adviser or broker for more information. I’m sure they’ll be happy to help you. Don’t forget to always read the Product Disclosure Statement (PDS) for the active ETF you are invested in. To find out more and to find the PDS please visit einvest.com.au