Labor's Housing Tax = Higher Rents in Sydney

Daily Telegraph 28 March 2019

Prepare for higher rents in Sydney if Labor’s Housing Tax is enacted.

 

The Housing Tax is comprised of two key measures: an increase in capital gains tax and a ban on negative gearing on future purchases of existing homes.

 

Now the state election is over, attention will start shifting to federal issues and both parties’ policies should be carefully examined. 

 

Analysis of Labor’s tax policy has been aided by a new report from independent market researcher SQM which found Labor’s policy would not only increase rents but also drive down house prices. 

 

The SQM analysis found rent in Sydney could increase up to 10 per cent, which means the cost of a unit based on median rent could go up more than $50 a week, or almost $3,000 a year. House prices could fall as much as 14 per cent, which could wipe as much as $127,000 from the value of a typical Sydney home.

 

Opposition Leader Bill Shorten and Shadow Treasurer Chris Bowen have made it clear they do not know when this policy would start.

 

The two reasons this plan will drive rents up are:

 

First, this is what happened last time.

 

In 1985, the Hawke Labor Government banned negative gearing. Rents went up in Sydney and by 1987, Labor was forced to reinstate negative gearing.

 

The ABC says “then treasurer Paul Keating did suggest that the abolition in 1985 had caused investors to leave the rental market, pushing up rents.”

 

The ban on negative gearing lasted only two years under a government that was prepared to take big risks to move Australia forward – cutting tariffs, cutting taxes and regulation. 

 

If they could hold their mettle on tariff reduction which hurt Labor’s core constituency, surely the ban on negative gearing would have been sustained if it was the right policy?

 

Numerous commentators have pointed out that that rents went up in Sydney and Perth but not elsewhere between 1985 and 1987. 

 

The problem is this new housing tax package is not the 1985 policy. The 2019 policy has a general tax increase in the form of a higher capital gains tax level and an oddball prohibition on negative gearing on existing homes. 

 

The across-the-board tax increase in capital gains tax alone will ensure that rents will increase as supply will be constricted. 

 

SQM’s research validates this point – they found rents would increase by 10 per cent in Sydney under this plan. 

 

Second, higher taxes restrict the supply of housing.

 

The laws of supply and demand have not been suspended. 

More tax on housing means there will be less houses built. It is pretty simple. If you want less of something, you increase tax! 

 

Taking buyers out of the market means lower demand. Lower demand means lower prices. 

 

Again, SQM’s independent analysis back this up. SQM found prices in Sydney would fall by 14 per cent under Labor’s plan.

 

In a market where house prices have been falling over the past 12 months, the market does not need any more excuses to reduce investment.  

 

The Master Builders Association commissioned modelling to test the impact of the housing tax:

 

“independent modelling by Cadence Economics shows that Labor’s policy would mean up to 42,000 fewer new homes would be built over the five years following the implementation of Labor’s policies, resulting in a reduction in the value of residential building activity of between $2.8 billion and $11.8 billion.”

 

These statistics are in line with the centre for international economics study which says:

 

“Driving investors out of the market will force up the price of renting as nearly 25 per cent of rental stock is provided by private investors.” 

 

The impact of higher taxes will roll onto the economy’s general wellbeing. 

 

CIE also say:

 

“For example, if the government reduced the discount rate that is applied to capital gains by 50 per cent to 25 per cent, we estimate that the economy would be smaller each year by 0.2 per cent compared to the baseline (of no policy change). If this full effect of the policy was applied to today’s economy, it would mean GDP is $3.7 billion lower (nominal GDP was $1655 billion in 2015-16).”

 

The housing tax changes will likely repeat the 1980s temporary experiment and deliver higher rents in a smaller economy. 

 

Ultimately we want people to invest in housing stock to increase supply. This is never going to happen when the alternative government doesn’t even know when their new tax would start.

 

Labor’s website says: “Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election... and Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election.” 

 

The Opposition Leader added "We haven't picked the final timing of that."

 

What a shambles. Renters should be mobilising against these changes before it is too late and history repeats itself. 

Andrew Bragg is a Liberal Senate Candidate for NSW

 https://www.dailytelegraph.com.au/news/opinion/andrew-bragg-labors-double-whammy-of-housing-unaffordability-hurts-renters-and-investors/news-story/01d57803261dc1ec01bc9ca8b5016c76?nk=2183e6bcd53008d1affbe9edaf141905-1553726274 

Unions fight to keep zombie super alive

Australian Financial Review 21 March 2019

The noise of union leaders calling on super trustees to put unions before savers has muffled the quiet crab walking away from a key Royal Commission recommendation on superannuation. 

Industry super funds escaped the Commissioner’s examination relatively unscathed. Lucrative boxes at the Australian Open, offered by Hostplus to employers to retain business, and large payments to unions were featured by not given much airtime. 

 You could have thought the Royal Commission’s fairly light touch approach would have been graciously accepted and industry funds would have chosen not to press their luck. 

One of the Commissioner’s recommendations, however, has sent a shudder through the union / industry super movement; the proposal to ‘staple’ a consumer to the first superannuation fund they join when they enter the workforce so that they carry this account with them from job to job. 

In its parallel examination of the superannuation system, the Productivity Commission concluded that ‘stapling’ would help protect customers from the $2.6 billion a year in fee gouging and excessive insurance premiums charged on the 10 million duplicate accounts in the system. 

The PC was clear that stapling was a superior policy to industry super’s counter proposal of ‘rolling over’ customers from one fund to another as they changed jobs. 

The PC estimated that ‘roll over’ would introduce $45 million per annum in new administration costs, not to mention the potentially devastating impact to individuals of losing insurance coverage as they acquire pre-existing health conditions as they roll from fund to fund. 

Not to be deterred by the clear recommendation of the Royal Commission, however, the CEO of Australian Super, Ian Silk, sought to rewrite the Commissioner’s recommendation. 

In the same breath as cautioning industry funds against hubris following the Royal Commission he audaciously argued “the mechanism by which [stapling] occurs should be a secondary concern” and that “whether it’s the Productivity Commission’s proposal or the auto-rollover proposal doesn’t matter so much...”.  

This ‘gentle, gentle’ argument for turning the ship on the Commissioner’s recommendation could not be further from the truth. 

Head of advocacy at consumer group CHOICE, Xavier O’Halloran recently called out the error in this argument, telling the AFR that “balance rollover was not consistent with ‘stapling’ accounts” and “adds a whole bunch of extra costs into the system.” 

“Balance rollover... seems really inappropriate and designed to satisfy industry not customer needs” he concluded. 

Perhaps more alarming, however, is that Labor’s Shadow Minister for Financial Services, who is responsible for Labor’s response to the Royal Commission, has echoed Australian Super’s line of attack on the Royal Commission’s recommendation. 

Clare O’Neil responded by arguing that ‘stapling’ was not “diametrically opposed” to the union / industry super push for a ‘balance rollover’ scheme. 

 The difference is, stapling would keep you in the account you first join until you proactively choose another fund. The “balance rollover” will move you to a new default (industry) fund every time you change jobs!

Labor, at the behest of unions and industry super, is crab walking away from perhaps the only recommendation that is inconsistent with the interests of unions. It’s any wonder Labor didn’t put a timetable on implementing this recommendation unlike it has done for many others. 

This is all occurring in the face of clear and indisputable evidence that the reforms are in the best interest of consumers, and industry fund members, to the tune of $2.6 billion per annum. What could be so important to Labor and the unions that they would be prepared to run the risk of backing union super’s interest over the best interests of consumers? 

The answer lies in the almost $60 million in AEC reported payments that have flowed from industry funds to trade unions over the past decade in the form of ill-defined sponsorship arrangements and directors fees. 

 It also lies in the unprecedented power unions have over corporate boardrooms across Australia as a result of controlling hundreds of billions in investable retirement savings, a concern recently raised by the Treasurer Josh Frydenberg in a recent letter to APRA Chairman Wayne Byres. 

In response, Byres indicated he shares the Treasurer’s concern that super funds must not act in the interests of their shareholders: the unions against the interests of savers. 

Byres has again asked Parliament for more powers, which to date, have not been delivered by the Senate thanks to union pressure. Currently the spoils of war, the power and money that industry super offers trade unions, is spread evenly across the union movement. 

Through the ‘closed shop’ Fair Work Commission process for allocating industry funds into modern awards, every union secures control over a share of the savings of employees in their respective industries. Stapling would blow apart this cosy arrangement. 

The default funds that dominate industries where young people are more likely to be employed, retail and hospitality, would enjoy the lion’s share of new members. 

The losers? Australian Super for one, explaining their attempt to rewrite the Royal Commission’s recommendation to suit their own interests. And any other industry fund where the average employee is older or has previously been employed elsewhere. 

Undoubtedly the biggest loser of faithfully implementing the Royal Commission’s stapling recommendation is the labour movement and Labor Party itself. 

Unions maintain an uneasy peace amongst themselves as their snouts are each equally submerged in the trough. 

Labor has already succumbed to the lobbying of union officials desperate to retain their share of the spoils that are derived from their respective industry funds.

When it comes to the implementation of the Royal Commission’s recommendations, Labor has made it clear that protecting the fiefdoms of individual unions is more important than the interests of savers.

https://www.afr.com/news/policy/unions-fight-to-keep-zombie-super-alive-20190320-h1cllz

NSW can have it all

Sydney Morning Herald 11 March 2019

Like all Australian elections, the NSW campaign features the usual combatants competing on a lopsided playing field.  

Three big challenges for the Coalition are emerging for the last two weeks of the campaign.

The first is whether the Liberals can overcome the plentiful union boots on the ground, big money and big lies.

In the 2016 federal election campaign, voters heard the worst of all lies. Unions and Labor said the Coalition would privatise Medicare.

Imagine that, privatising a government health scheme that pays people’s health costs. The proposition is absurd.

Labor ramped it up in the last few weeks of the federal campaign. Internal Liberal Party polling showed “Mediscare” destroyed the party in Tasmania.

As fanciful as this sounds, many people believed it and voted for Labor.

I am sure Labor doesn’t enjoy scaring people but scaring people seemingly works, it shifts votes.

No doubt a lie on a similar scale will emerge in the last two weeks of this campaign.

Whatever the lie is, it will be supercharged both physically and digitally.

Union operatives on the ground will appear in every suburb in every marginal seat over the next fortnight which provides an extraordinary physical campaign edge.

Doorknocking, street stalls, manning pre-poll stations and infiltration of community organisations are the basic services provided by paid union campaigners.

On polling day, you may even see nurses or fire brigade officials handing out for the Labor Party.

The same people who are paid by unions to represent workers are also adroit at digital trolling. Union trolls push out the talking points of the Labor Party on Facebook, Instagram and Twitter to shape opinion.

These are not Russian bots, these are real people on the union payroll.

The Liberal Party generally campaigns on its own.

Occasionally there is support on single issues from third party groups like business associations but it is never as directly political or as well resourced as union efforts for Labor. And this will be the first election in NSW following the 2017 same sex marriage plebiscite. 22,000 new people will be on the roll.

Younger people tend to lean towards Labor which will be an added bonus for the opposition.

The second challenge is clearly communicating the transport miracle in NSW.

Labor’s 16 years in office left Sydney clogged and congested. Major projects were announced but abandoned. Over 8 years, NSW has seen outcomes. The spin is gone. The roads and rail are in.

The scale of the transformation is unparalleled. We are months away from the North West Metro commencing. West Connex is starting to bear fruit with the M4 East tunnel due to open within weeks.

North Connex is on the way, light rail is coming and a slew of regional projects will ensure the bush gets its share.

The challenge of the transport miracle is much of the final delivery will occur after the election. The task for the Liberals is to ensure people know the outcomes are in and the spin is gone.

For this to happen, the miracle must be broken into digestible bites. Rail lines, roads and bus stops.

The third challenge is sticking to the Liberal Party’s core equity: economic management.

The facts speak for themselves.

NSW unemployment is the lowest it has ever been at 3.9%. The state is booming and delivering record investment in infrastructure. And has no debt. As the Treasurer Dominic Perrottett said on Sunday, Michael Daley thinks the biggest issue in NSW is whether to refurbish or rebuild a stadium. It is not.

The biggest issues are always, do I have a job? Is my life getting easier? Do I have access to essential services? Do my kids have a future?

After eight years of good government, the fact is, NSW has good answers to each question. NSW is back on track.

Three new metros, five new motorways, 170 schools and 40 hospitals are being delivered.

98 per cent of the infrastructure spend is on hospitals, schools and transport. Just 2 per cent is on stadiums.

The equivalent “Mediscare” lie we are already seeing is the “Liberals cut hospitals to give it to the stadium”. Prepare for more lies.  

What do you do when you have no positive agenda? Scare people.

The Premier rightly said on Sunday “you can have it all”. You can, but only if you get the economic fundamentals right - which the Liberals have done.

Andrew Bragg is a Liberal Senate Candidate - @ajamesbragg  

Shorten's Mining Tax 2.0

Daily Telegraph 12 February 2019

The last time the Labor Party delivered a surplus budget was in 1989. 

If elected this year, Labor is on track to repeat the mistakes of years past and lock Australia into more deficits.  

Labor’s deficits occurred simply because expenditure exceeded revenue each year.

Creating poorly thought out new taxes which fail to raise money but lock in spending has often driven Labor’s hopeless record. Labor’s latest effort is their $55 billion Retiree Tax and the $32 billion Housing Tax.

Unlike Labor’s 2010 Mining Tax which had specific expenditure tied to the revenue, we have few clues where the money is going this time. It is buried, probably deliberately.  

Labor Treasurer from 2007-2013, Wayne Swan delivered one of the most memorable and least credible promises in the economic history of Australia on 8 May 2012. “The four years of surpluses I announce tonight… I am very confident that we will achieve a surplus and build our surpluses over time.” 

The surplus(s) never happened. The new taxes failed, the big promises were not kept and the biggest deficits in Australian history were delivered.

Sound familiar? Labor in 2019 increasingly sounds like the Labor Party of 2010.  

There are two main reasons that Labor is on track to make the same mistakes of the Rudd Gillard period and should not be trusted on the Treasury benches.

Firstly, Labor’s new taxes strap unfunded, unsustainable spending into the budget.

Wayne Swan created his own problems like new taxes such as the Mining Tax which he claimed would deliver endless revenue but failed to do so. 

The initial Mining Tax was supposed to raise $49.5 billion from 2012-13 to 2016-17. Then, after a few nips and tucks by the same Treasurer, it was claimed to raise $26.5 billion over the same period. 

It was given plenty of time to raise the promised several billion dollars in each of the 2012-13 and 2013-14 financial years. Swan’s 2012 budget promised $3 billion in receipts in 2012-13 alone.

When repealed in late 2014, total receipts collected to 2014-15 were $500 million. 

The trouble is, Labor started spending the money. 

The Mining Tax was to pay for increasing the superannuation guarantee to 12%, school kids bonuses and a range of mining industry changes.

This is how a permanent deficit is created: politicians promising payments against a flimsy revenue base. 

This is what Labor is promising again in 2019. 

Labor say their new Housing and Retiree Taxes will drive $87 billion of new revenue. No doubt all of this money will be spent in Labor’s alternative budget figures which are unlikely to link spending commitments to these new tax hits.

Whether the spending promises are in block programmes like national Centrelink services or are as scattered as an MRI machine, they will not be paid for by these new taxes. 

The fly in the ointment is the revenue will not be raised. Australians will invest less in shares and houses. We are already starting to see large market distortions which will reduce Labor’s revenue hopes.

Earlier this month it was reported “the nation’s largest and oldest listed investment company, Australian Foundation Investment Co, dumped shares in BHP and Rio Tinto to capture the value of franking credits for its mostly elderly, retired shareholders before the dividend imputation system is ripped up by a future federal Labor government.”

These movements will reduce the cash that Labor has already included in its alternative budget.

As former OECD Director Adrian Blundell Wignall wrote in January,the Retiree Tax “policy (will not) achieve the hoped-for revenue gains. It is precisely the sort of thing that financial markets are good at avoiding.” 

Similarly the Housing Tax measures will reduce investment in housing and therefore the revenue collection levels will be lower than claimed when Labor announced their Housing Tax when house prices were rising. They are now falling. 

Secondly, Labor is promising a surplus but its new taxes will cut growth and its record shows it cannot cut spending.

The economy will be smaller thanks to the higher taxes. For instance, the Centre for International Economics found Labor’s CGT tax alone will hit GDP by $3.7 billion per annum & reduce state balance sheets by $1 billion each year.

As Wayne Swan discovered, a smaller economy generates less revenue! 

If Labor wins and legislates its big new taxes, shrinks the economy, fails to generate the promised revenue but is politically stuck with its spending commitments, what can be done?  

Cut spending. The trouble is cutting spending is hard. Even as the Mining Tax which paid for the “SchoolKids Bonus” was being repealed, Labor voted against its abolition.

From its last period in office, Labor had spending hitting 26.5 per cent of GDP by 2023-24. Spending is now on its way to 24.6 per cent in 2022. 

In annual growth terms, Labor had the budget growing at over 4 per cent. Spending growth is now down to 1.9 per annum since the Coalition was elected in 2013. This is the lowest spending growth in 30 years. 

Labor is relying on a Henry Kissinger proverb “It is not often that nations learn from the past, even rarer that they draw the correct conclusions from it.”  

The market distortions the Retiree Tax are now provoking cuts away at Labor’s economic credibility on a daily basis. 

This ensures the froth of an election campaign will not provide cover for Labor to advocate its flimsy alternative budget free of proper scrutiny. 

Andrew Bragg is a Liberal Senate Candidate for NSW – Twitter: @ajamesbragg

 

Five big problems with Labor's Retiree Tax

Facebook 1 February 2019

Five big problems with Labor's Retiree Tax

Tim Wilson - Federal Liberal Member for Goldstein's House Economics Committee is currently investigating Labor’s unfair, retrospective Retiree Tax.

The tax will hit 900,000 people. 300,000 of which are in NSW alone. 

The Retiree Tax overturns a legal arrangement to ensure profits in Australia are taxed only once. The arrangement is called dividend imputation. 

If someone invests in an Australian company that pays tax on profit, the investor receives a franking credit (tax credit). 

The investor who owns the company receives this tax credit because the company has already paid tax on behalf of investors.

This way, tax is paid once.

Labor’s proposal rips this mechanism from 900,000 self-funded retirees. These retirees will no longer be allowed to receive all of the franking credits they are entitled to as investors in companies that pay tax.

The Committee is giving people a voice. In NSW, hearings are being held in Merimbula, North Sydney and Bondi.

If you are new to this issue or haven’t been following it. Here are five big problems with the Retiree Tax.

1. It is retrospective 

You've saved for your retirement and now your income in retirement will be lowered because Labor want to move the goal posts mid match.

It is not grandfathered. This overturns a strong Australian tax law principle that the rug should not be pulled from people who have structured their affairs in accordance with the laws of the day. 

If enacted, a retrospective law of this magnitude will shatter confidence in the superannuation system.

As Townsville resident Greg Maloney told the committee on Tuesday:

"Changing the rules after the game has started is unfair. The only group adversely affected by this is self-funded retirees."

2. It punishes people who have self-funded their retirement

The new tax only applies to people who are fully self-funded and not taking a pension - in full or part. It sends the wrong message - something like “if you want to be self-sufficient in retirement, we will tax you to the point you will need a pension”

This surely sends the wrong message to people who have tried to be independent in retirement. Why bother trying to be self-funded? 

3. It is not targeted at the big end of town 

This policy will hit 300,000 NSW retirees, many of modest means. Queenslander Rex Grattidge who has an income of $30,000 per annum would lose 25% of his income if the Retiree Tax is enacted. 

“People feel hurt that they are being classified as rich and wealthy and don’t understand why they are being forced into a higher tax bracket because they are not getting the credit back. Why them?” (The Australian 22/1)

The Association for a Fair Retirement says: 

In 2014-15 more than half of the 1.16 million individuals initially impacted had taxable incomes below the $18,201 tax-free threshold, and 96% had taxable incomes of less than $87,000. The most severely affected in this group, however, will be the 34% of older Australian retirees who take great pride in being self-funded in retirement , many of whom have little, if any, superannuation.”

Self-funded retirees will face a new tax in the form of an effective tax rate of 30 per cent on dividend income. Meanwhile it preserves the arrangements for the big funds which can keep their credits as a result of being bigger and having both accumulation and retired members.

4. It won’t raise the revenue & Labor's spending promises will be unfunded and unsustainable

This policy will be like Labor’s Mining Tax. It will not raise the $55 billion because people will change their financial arrangements. It will be too late for many who will be hit with the retrospective tax but the wealthier will get away from the Retiree Tax.

Yet like the Mining Tax, Labor has already committed the money. This is how structural deficits are created: Labor promises revenue which never materialises and therefore cannot fund its big promises.

“Labor will raise a lot less revenue than it imagines, and the social costs of this policy are higher than they anticipate.” RMIT academic (AFR 29/1)

“Nor will the policy achieve the hoped for revenue gains. It is precisely the thing financial markets are good at avoiding.” OECD official (AFR 16/1) 

5. You’ll pay Labor’s tax but Labor won’t 

Labor has responded to criticism of their unfair policy by stating that retirees who don't like Labor's retiree tax are "entitled to vote against us” (ABC 30/01)

But don’t worry, Labor has exempted senior politicians who are members of retail and industry super funds from the new tax! The Opposition Leader and Shadow Treasurer are off the hook. You’ll pay but they won’t.

Ultimately, Labor doesn't care that the retiree tax hit elderly widows the hardest, that it will drive down retirees living standards - the standard of living of your loved ones - your parents, or grandparents.

Picking retirees' pockets

Daily Telegraph 12 December 2018

After a decade of deficits, Australia is set to return to a budget surplus next year under the Coalition. 

Yet the Labor Party is promising to introduce a swag of new taxes – on shares, housing and trusts. 

If elected, Labor will deploy a new tax on the shares held by 310,000 New South Wales retirees.

 The new retiree tax would ban tax refunds to self-funded retirees where companies in which they hold shares have already paid tax. 

The kicker is Labor’s new tax on shares only applies to self-funded retirees! 

Retirees will pay tax on already taxed profits. Australia’s system of dividend imputation which supplies franking credits was designed to abolish this form of double taxation. 

For decades, Australians have planned for retirement on the fair assumption the system of franking credits, which has enjoyed bipartisan support, will exist in future.

This new retiree tax does not discriminate between the city and bush or rich or poorer electorates. In the South Coast seat of Gilmore, 8587 will be affected. In the seat next door of Eden Monaro it is 6918 and inner city Wentworth has 8443 people who will lose out.

There are three big problems with this tax. 

Firstly, the retiree tax is premised on Australia not having enough tax revenue – even as we are about to approach a surplus budget. 

Labor take their advice from extreme activists like the Australia Institute who say: “Australia is a low-taxing country… Australia raises far less tax revenue than most developed countries.”

This “less revenue” claim is based on misleading apples with oranges international comparisons from the OECD and World Bank which try and compare economy wide tax systems that are wildly different. 

The Productivity Commission says these comparisons are “complicated by the fact that some benefits provided by employers (for example, employer superannuation contributions) are not measured as a tax in Australia but are part of SSCs [social security contributions] in other countries.” 

Thankfully the PC disagrees with the Australia Institute and has said: “taxation revenue as a share of GDP from all other sources would be higher in Australia than the OECD average…”

With the OECD average tax to GDP ratio being 33%, Australia comes in at 34% under an apples with apples comparison. 

Anyone who lives in Australia knows we are not a low taxing nation. Labor doesn’t want to manage the budget properly – their only solution is more taxes.

Secondly, this policy is not targeted at wealthier people. 

The 310,000 NSW retirees to be hit by the retiree tax are not the cigar chomping, caviar set. They are self-funded retirees living in Bateman’s Bay or Bondi. 

Treasurer Josh Frydenberg has said of the hit to NSW retirees: “The people (Labor) are hurting most are those on lower taxable incomes, with about 84 per cent of those impacted having a taxable income of less than $37,000.”

This flies in the face of Labor’s policy statement that this new tax is about “reducing superannuation tax concessions for millionaires.”

Labor says “Low wealth households typically don’t benefit from the current taxation arrangements – they have little capacity to accumulate the wealth needed to do so.” 

Clearly, they have not done their homework or do not understand their own policy. 

A typical self-funded retiree to be impacted by this policy has simply invested in Australian shares (inside or outside of super) and is planning to use the tax refunds to pay for their retirement. 

The losses for many will be significant. For example, a couple that retires today with $800,000 in their superannuation fund and a 25 per cent allocation to Australia equities will lose $3,080 if this new tax is enacted.

This is a typical allocation to Aussie shares most retirees have in their super fund; which suggests thousands of retirement plans will onlynow be viable if the Coalition is re-elected.  

Thirdly, the policy is retrospective in practice. 

When planning retirement, Australians plan decades in advance. Retirement savings plans are set with the expectation a future government will not pull the rug from underneath. 

Self-funded retirees are heroes in our community. People who have scrimped and saved to be totally self-sufficient. 

Many people retiring now invested heavily in Australian shares which were demutualised or privatised in the past two decades: Commonwealth Bank and Telstra for instance. 

The franked dividends paid by these companies underwrite many retirement plans. No one would have foreseen a future government overturning the long held principle of taxing a person at their marginal tax rate. 

Retrospective taxes are commonly found in dictatorships and unstable nations – not Australia.   

The fact is, the new tax would apply to existing investments. It would apply to all Australian shares held by self funded retirees. It is therefore retrospective and has not been “grandfathered”.

How could you possibly plan for the future under these circumstances? When the goal posts are moved in mid-match, you cannot win. 

In this half-baked proposal, Labor would expose 310,000 NSW retirees to a new retrospective tax. 

 Self-funded retirees deserve our total support and should never be collateral damage – especially as Australia is finally returning to surplus budgets.  

Andrew Bragg is a Liberal Senate Candidate for New South Wales

Labor's tax sledgehammer would damage budget repair

The Australian 26 December 2018

Next year the Federal Budget returns to surplus for the first time since the Howard Government’s 2007-08 Budget. 

This follows years of steely determination by the Coalition Government, in the face of an obstructionist Senate led by a Labor-Greens alliance.  

Yet as we approach budget balance, the Labor Party proposes raising taxes by more than $200 billion if elected.  

Why would Australia change course just as the books are about to balance?

Labor’s tax sledgehammer has barely had any scrutiny. The $200 billion tax hit will lead to less investment and jobs, fail to deliver the reputed revenue and return Australia to permanent deficit, higher debt and higher interest payments.  At least three big questions must be answered before the election.

Question one: can we expect any distortions or negative behavioural changes?

Labor’s two big tax proposals are to (1) introduce a new housing tax and (2) a new retiree tax. 

The housing tax abolishes negative gearing on existing homes while the retiree tax steals franked dividends from self-funded retirees invested in companies that have already paid tax.

Labor claims the housing tax will raise $32 billion over 10 years while the retiree tax is designed to raise $55 billion over the same period.

Both new taxes will only raise money if people continue on the path of saving and investing.

Labor’s signal to hard working Australians is if you invest in housing or Australian shares, “we’ll tax you more”. It sends a clear message to Australians seeking to be self-sufficient in retirement - don’t bother.

Increasing property taxes will drive less investment in housing. With the prospect of paying higher capital gains tax and the loss of negative gearing, rents will have no option but to go up.

Increasing taxes on shares will drive less investment in Australian companies through retail shareholding and self managed super funds. 

Instead, Australians will be more likely to invest in foreign companies. The distortion will lead to fewer houses, fewer jobs and more risky investing to make up returns.

Question two: will the money actually be raised?

Labor loves to create new taxes that come up skint. Labor’s Mining Tax was probably the least credible attempt to establish a new tax Australia has seen. 

The Mining Tax was announced in 2010 and legislated in 2012. Labor projected it would raise $10.5 billion in its first year, whereas it collected just $500 million over the one and a bit years it was in place.  

Labor locked in spending against the revenue that never materialised, such as paying to increase the Superannuation Guarantee and infrastructure.

The national budget is no different to a household budget, if no money comes in, no money can be spent. Unless it goes on the credit card - which must be paid later, with interest!

The proposed taxes on housing and retirees are built on equally shaky foundations. Behavioural changes (reduced investment in housing and shares) will ensure much of the money will never come in the door. Meanwhile the plans to spend it are well advanced.

This is the precise cycle Labor repeats. It’s how deficits are made. It’s how debt is built up. It’s how Labor loses control of the budget every time.

Question three: is history really going to repeat itself if Labor is elected?

The Coalition is Australia’s best economic manager. Partly that is because we believe managing anything requires a rule book. 

In the case of the national budget, the Coalition places a “fiscal rule” which ensures tax revenues do not exceed a certain proportion of the economy – 23.9 per cent. This rule ensure taxes do not stifle growth and it incentivises spending restraint.  Labor’s national platform says:

"Labor considers the Coalition's arbitrary cap on the proportion of tax collected as GDP does not fulfil any useful economic purpose."

Translation: we will raise taxes.  

The other issue is Labor cannot control spending. On the spending side, when last in office, Labor was projected to spend 26.5 per cent of GDP by 2023-24. 

After five years of Coalition government, spending as a proportion of GDP is down to 24.9 per cent. It is on track to be 24.6 per cent from 2020-21. 

Finance Minister Mathias Cormann noted the Coalition has limited “real spending growth to 1.9 per cent on average per annum since our election to government… (and) over the last 30 years, Labor Government have been in office for 14 years.  In that time they have not delivered a single surplus budget.” 

Labor takes its budget advice from Getup who said “deficits are, and should be the norm.” 

No nation can afford permanent deficit with never ending debt. Eventually, borrowing solely to meet interest costs is required.

The past shows how this will play out, Labor cannot manage the Australian budget. Australia cannot afford to repeat the cycle.

Andrew Bragg is a Liberal Senate Candidate for NSW 

Labor not as safe as houses

Daily Telegraph 17 January 2019

The Coalition government is due to return Australia to surplus from next financial year. 

Despite the improving financial standing of the nation, the Labor Party proposes to hit the economy with $200 billion in new taxes.

Labor will turn Australia into a high tax paradise. There will be brand new taxes on houses, shares, superannuation funds, trusts and there will be higher personal income taxes for millions.

Small businesses, typical “mum and dad” investors and the economy at large will suffer from this swag of unnecessary taxes.

One of the worst new taxes is Labor’s housing tax. 

The housing tax has two elements: (1) a ban on negative gearing on existing homes and (2) a reduction on the capital gains discount for assets held for more than one year from 50 to 25 per cent. 

This proposal will end the practice of deducting investment costs (such as loan interest) against wage and salary income unless the investment is a new house. This overturns a fundamental principle that expenses are deductable for tax purposes.

There are three significant problems with this new tax. 

Firstly, this will do nothing to boost housing affordability – indeed it will likely increase rents.

Labor’s attack focuses on the evils of negative gearing exercised by “property barons” and have promised to improve housing affordability.  

Labor says: “this policy will see a boost in new housing and will provide young families with the chance to find a home, and will take pressure off inner city housing markets that are predominantly made up of existing dwellings”

Any link between banning negative gearing and increasing capital gains tax with increasing affordability is totally confused. 

How would increasing housing taxes which reduces investment in housing create more homes?   

With studies showing the policy will dry up investment into both new and existing houses, it is more likely we will end up with fewer houses which are worth less with higher rents.

Cadence Economics’ study for the Master Builders Association shows the housing tax will reduce supply of housing in Australia: 

“Changes to limit negative gearing to new dwellings and reduce the CGT discount to 25% are estimated over the next five years to reduce new dwelling starts by between 10,000 and 42,000.”

Over summer, new analysis from housing market experts Corelogic Data highlights the prospect of misguided tax policy is already impacting the supply of new homes: 

“Potentially investor sentiment is being weighed down by the potential for changes to taxation policies related to housing should there be a change of government.” 

UBS’ chief economist has warned the changes could badly damage the economy: 

“My concern would be that if you were to make a material change to tax policy at the same time as banks are tightening lending standards, it could exacerbate what's already a downturn into something more serious.” 

Secondly, Labor’s housing tax is poorly targeted.

Australians with more modest assets will suffer the worst consequences. The policy cancels the ability to deduct investment expenses against wages but not against non-wage income.

70 per cent of people using negative gearing have one property and have a net rental loss of less than $10,000.

Prior government analysis shows people earning less than $100,000 will be able to claim on average 28 per cent of their investment costs (unless they invest in new housing). Whereas people earning more than $109,000 will be able to keep claiming 86% of their investment costs in existing housing.

Big wig investors will be able to use income derived from non-wage income such as investments in other houses or complicated investment schemes. 

Property tycoons win out whilst the nurses, teachers and police investors miss out. 

The Centre for Independent Studies has said: “the proportional benefit of negative gearing is substantial at low income levels. This could include non-working spouses holding negatively geared property. Abolishing negative gearing will disproportionately hurt the lower income earners.” 

Thirdly, it is unclear what the purpose of this policy is; and when it starts.

On purpose, despite the policy being likely to reduce housing supply and therefore affordability, its confused stated aim is to improve housing affordability by reducing investment.  

Even one of Labor’s key budgetary advisers Bob Officer says “What is the social cost associated with home ownership or investment in housing? As a generality there is none. In fact, one could argue for a social benefit in that providing housing encourages better citizenship and social cohesion.”

Why would any political party want to reduce investment in housing?   

In reality, it is a populist exercise which has the illusion of smashing rich people when it simply reduces opportunities available to all working Australians. 

Surely now that Sydney and Melbourne house prices are falling by 9 and 6 per cent respectively, even Labor will not maintain the lie this policy will increase affordability.  

On timing, Labor’s official website says:  “Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election.”

Newspaper reports claim the Opposition Leader is “unsure” when the policy would start. Sound good? Only if you don’t want to buy a house, rent a house or invest for the future.  

Australia is soon to be back in surplus and cannot afford amateur hour economic management. 

Andrew Bragg is a Liberal Senate Candidate for NSW - @ajamesbragg