Australian politics has been pretty colourful over the last decade and the Federal Election set for mid this year will be no exception. So what does a change of government mean for families and small business? We have put together a few predictions of what we think might change under a Labor government and the impact it may have.
1. Industrial relations
Employers that hire staff on a Sunday could see a hike in costs as a Labor government would seek to reverse the Fair Work Commission’s 2017 cuts to Sunday penalty rates. They will also seek to crack down on ‘permanent casuals’ and ensure that those that are hired as casual but are actually working on a more permanent basis and have set hours gain entitlements such as annual leave.
2. Capital Gains Tax
Labor have promised to cut the discount on capital gains taxes heavily. Currently, as introduced by the John Howard government in 1999 when you sell an asset that you have held for more than 12 months you receive a 50% discount on the capital gains tax so effectively you only pay tax on half of the profit.
However, the Labor government have promised to cut this to 25% discount, which means that when you sell an asset that you have owned for more than 12 months you will now pay tax on 75% of that gain.
This is a significant difference for new investors as these changes will only apply to assets that are purchased after this legislation is changed. Any assets you currently hold will still receive a 50% discount when you sell them. Those that will feel this change the most will be higher income earners.
3. Negative Gearing
With housing prices hitting all time highs in Melbourne and Sydney and now experiencing the biggest drop since the global financial crisis, the issue of negative gearing has been hotly contested.
Will it increase or decrease property prices and make housing more or less affordable? So what is Labor’s plan?
They remain adamant that if they win the 2019 election they will abolish negative gearing for new investors buying existing properties. They believe that by combining a reduction of the capital gains tax discount and removing negative gearing they will make housing more affordable.
But what will it really do? Treasurer Josh Frydenberg insists that this will be disastrous for everyone. If you own your own home it will be worth less and if you rent you will be paying more. He has also shown concern at the timing, making these changes at the same time as banks are tightening their lending standards could mean that it results in a more disastrous situation.
Related: Can Negative Gearing be used as a Profitable Strategy for Property Investors?
While many people want to own their own homes, there are still people who need to or choose to rent. By discouraging investors, making it less advantageous for them to enter the market there will be less investors, and less houses for rent. This will ultimately push rents up. This will impact our most vulnerable members of society.
Aussie Home Loans founder John Symond has said that it could “tip Australia into a recession”.
Summary
With an introduction of some major changes to affect investors, we are likely to see a significant shift in peoples investment behaviour which in turn could have a dramatic effect on property prices and rental increases.
Abolishing negative gearing would create a two-tier property market that could hurt existing investors, and prices, when it came time to sell. Critics say that most likely investors will retreat, putting further pressure on a housing market already under some stress.
At the moment the Australian property system relies on a certain level of investors to create supply. If you reduce supply you'll put more pressure on rental prices, and create even more affordability issues for first home buyers.
Although, there are some beliefs that supply won't be affected because negative gearing would remain a tax-effective measure for some investors.
For example, as a primary investor, you will still be able to enjoy the benefits of negative gearing. However, if you want to sell to another investor, that investor will need to assess how much he or she is willing to pay given they will not be able to claim negative gearing.
Which means, the secondary investor will have significantly lower financial benefits and therefore will want to pay much less for the property.
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