Here’s how Labor’s $200 Billion tax slug will impact you

Labor proposed $200 Billion worth of new taxes.

That’s a staggering amount – almost unfathomable

Australia Tax2With the many new taxes and policy changes that Labor will implement if they win the May 18th Federal Election, they will tax your income, your home, your superannuation and your savings.

Many of the changes are difficult to understand and the impact on us is hard to determine.

The numbers are so large they are almost meaningless unless of course they are explained, so I’ll try and break them down.

$200 Billion in new taxes

Putting this into perspective this sum is more than the whole tax the government receives from individuals and double what it receives from company tax.

Such a massive and immediate drain on the economy must put pressure on both employment levels and wage rises.

This tax impost is equivalent to increasing taxes on every family by over $1800 per year

Loss of negative Gearing benefits

This has received a lot of publicity recently and it has been revealed that Labor has made a number of incorrect basic assumptions in formulating the potential benefits of the proposed taxes.

Plus they seem to have forgotten how ordinary mum and dad investors are providing housing for renters.

Some other things they seem to have forgotten include:

  • Wealth Retreat 2018 - Ken Raiss
    Many property investors are ordinary Australians earning about $80,000 per year. These are not “greedy investors.”
  • The Government spends about the same on Public Housing ($4.7 billion) as they do on Recreation and Culture and the trend is less and less each year. Someone (you and me) has to take up the slack.
  • It is said that the loss of negative gearing will benefit the government by $3 billion per year (an this figure now seems to be significantly overstated); but p investors spend $44 billion per year to own and maintain these properties.
  • In most businesses the initial years start off with losses and this is the same for property investors. The benefit of negative gearing is what all investors and business owners receive when they spend more than they receive to build up a business which will become profitable and pay tax.
  • There are 400,000 public houses in Australia compared to over 3 million properties owned by investors. If 10% of investors leave the market, then the Government will need to step in and spend more than the tax saving from disallowing negative gearing.
  • Loss of this tax benefit to investors could add over $5,000 to a property investor’s cash flow which would require them to increase rents on average by over $100 per week.
  • Just talking about this policy has reduced house prices due to the uncertainty. So who knows what eventually implementing the actual policy will do. The policy by Labour is specifically designed to help reduce house prices (your home) so that 10% of housing buyers, being first home buyers can afford to get into the market. The Labour Government is punishing 90% of home owners so 10% first home buyers may be better off.

Electric cars

Electric CarsLabour wants 50% of all cars to be electric within 10 years.

Assuming many cars will not be suitable for electric drive i.e. farm vehicles, long distance driving, utes and 4-wheel drive cars then over 75% of passenger cars will be taxed if not electric.

The proposed tax on petrol cars will be over $2,000 per year as they emit more than the 105 grams of carbon.

A 50% target for electric cars will reduce government excise taxes on fuel by $5.5 billion per year.

This loss of revenue will need to be made up from somehow – maybe by things like road levies, poorer road maintenance, no black spot remedial work, higher registration and insurance costs to name a few. This impost will add over $5,500 per year to every hard-working Australian family.

The loss of the cash back on Franking Credits

Australian who own shares in public companies have their individual tax on dividends pre paid by the company.

When these share owner receives their dividend (their share of the profits in the companies they partly own), they have the value of the prepaid taxes (paid by the company) taken into account.

Share Owner1If the shareholder’s tax rate is higher than the tax taken by the company (and paid to the government) they will pay a top up tax.

If below they get a refund.

It is proposed to take this refund away.

This is the same as denying you a tax refund if you overpay your PAYG on wages.

The Labor Party say this will only impact a small portion of Australians but this is false.

Existing retirees are immediately impacted as this cash refund was money they used to live on.

Everyone with super will also be impacted as the non-refund will reduce the cash within super which will mean less investments and therefore less money in retirement.

Retirees will see the impact immediately, everyone else will not see it until retirement.

retire-baby-boomer-old-grandparents-sail-boat-leisure-fun-happy-summer

This is a tax by deceit and Labor is hoping what you cannot see you will not complain about.

Estimates range from an annual loss of about $500 to $2000 for people still in accumulation.

Imagine what this annual loss adds up to over 20 or 30 years.

A similar impact will occur to people who invest in the share market outside of super.

But there’s more…

Recent Labor announcements, supported by Treasury, show additional taxes and the burden on hard working Australians amount to $387 billion.

If they come to power Labor will be the highest taxing Government in Australian history where taxes represent 25.9% of our GDP compared to a self-imposed previous limit of 23.9%.

This 2% growth represents an additional $35,000 per Australian Household (or over $15,000 per person) in additional taxes, imposts or reduced business activity.

In summary:

Labour propose to tax an additional:

  • Tax$57 billion to retirees
  • $31 billion on property investors
  • $30 billion on businesses using trusts
  • $34 billion on higher superannuation taxes
  • $5 billion from halving the capital gains tax discount
  • $2 billion by limiting what you can spend on accounting and tax services.
  • Plus, many more

What’s next?

The Greens and the ACTU would like the introduction of an inheritance tax.

What’s left? How long before your family home will be taxed?

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Ken Raiss

About

Ken is director of Metropole Wealth Advisory and gives strategic expert advice to property investors, professionals and business owners. He is in a unique position to blend his skills of accounting, wealth advisory, property investing, financial planning and small business. View his articles


'Here’s how Labor’s $200 Billion tax slug will impact you' have 18 comments

    Avatar

    May 3, 2019 Brendan

    Hi Michael,
    Sorry guys but you’ve lost my subscription with this article. Your advice is clearly biased which now taints all future advice. No mater who you vote for the world will not fall off a cliff if labour get elected just as sure as it won’t if the liberals get in. Both work in what they believe is in the best interest of the country but at some stage in the election cycle a broom needs to come through. The fact that the liberal party did not learn from the damage done by labour when they went through their leadership changes is enough for me to give the other mob a go. If you want a statesman in charge as you said you won’t get it by changing leaders every time the wind changes direction. But back to your article, I am a property investor with three young children and if I pay tax I believe I should be able to reduce it through investments. But in the case of the retirement tax if no personal income tax is paid how can someone argue that they should get a handout from the government, currently running at around 8 billion a year and rising. For the sake of decent economic management this needs to be stopped. And as for you pushing the death tax argument this has been denied by labour as a blatant lie and can not be found mentioned anywhere on their election platform. I don’t tell anyone who to vote for and neither should you guys especially when you are using clearly fake assumptions. I’ve been a subscriber for the last 6 years but found this article extremely disappointing. Best of luck in the future.
    Brendan.

    Reply

      Michael Yardney

      May 4, 2019 Michael Yardney

      Brendan – sorry to see you go. Clearly this article was polarising, but we felt we had to tell it as we say it – that what the role of this blog is – just like lots of people don’t always agree with my views on property

      Reply

    Avatar

    May 1, 2019 John Beattie

    Hi Michael and Ken,
    Thanks for your earlier reply Michael. I’m well and living off equity thanks mainly to yourself and your long term strategies. I hope you and Pam are well too and we can catch up soon.
    Looking at things on a global scale it’s not hard to understand why there is so much unrest and talk about the haves and have not’s in the world. With the constant and rapidly increasing changes and displacements technology brings, flattening company structures, climate change, increasing global trade and competition for earnings and govt meeting expectations of better living standards and security we have lots to worry about.
    Our goverments are torn between providing solutions and meeting expectations on all these fronts. Labour have some good ideas such as Superannuation and Medicare for all going back to the days of Keating and the Libs have ideas about flat tax rates for higher income recipients which irks the poor. You can see the arguments on both sides and the conflict it is creating. We just don’t need the excesses each is proposing. And I will leave it at that. This blog is basically about Property and where warranted how taxation affects it.

    Reply

      Michael Yardney

      May 1, 2019 Michael Yardney

      Thanks John – this blog is much more than property – even though it’s the main focus – when I opened it up to personal finance, success and the psychology of success readership doubled – we had over 1.1 million unique readers last year

      Reply

    Avatar

    May 1, 2019 Paul McGillion

    Hi Michael & Ken,
    There appears to be a whole lot of assumptions and things which are just plain wrong in this article.
    1. Many investors may earn $80k a year. However, this figure is taxable income. Those who can access negative gearing and able to structure their affairs otherwise don’t all fall into the ‘mum & dad’ category (although many do – like me). Many of these $80k per year people would have gross incomes significantly higher. Also, modelling has shown that the benefits of NG flow overwhelmingly to the wealthiest.
    2. Loss of tax benefit could add $5000 per year to an investor’s cash flow. Gee that would be good! I think Ken means it would add to an investors costs and reduce cash flow to an investor by $5k per year. Nevertheless, this is wrong. It will be grandfathered for those already NG older properties. In fact, investors may drop out due to misinformation like this and the pool of new investors may be reduced by those only able to afford new builds. This could mean an advantage for those grandfathered. They keep the NG benefit and might profit from higher rents. (No evidence, just a hypothesis).
    3. Electric vehicles not suitable for certain purposes – Wrong. See below:
    https://www.vox.com/energy-and-environment/2019/1/24/18195880/ford-f150-ev-electric-pickup-truck
    https://theconversation.com/heres-why-electric-cars-have-plenty-of-grunt-oomph-and-torque-115356
    https://www.machines4u.com.au/mag/meanwhilein-australia-electric-trucks-are-already-a-thing/
    There may be reductions from fuel excise but this may be offset by the decrease in medical costs from illness and death from the reduction in pollution.
    Electric vehicles will be also cheaper to run:
    https://www.whichcar.com.au/car-advice/how-much-does-it-cost-to-charge-an-electric-car
    Consumers and businesses can then channel these savings into areas more stimulatory for the economy than profits which flow to big resource companies. I.e. back into the consumer sector and business has more money to invest back or take as straight profit.
    4. Franking credits – Ken summarises the effect on taxpayers. But taxpayers will not be affected. The changes only affect those who pay no tax but still receive a refund for the franking credit. I can see merit in grandfathering this for those who structured their affairs based on receiving the franking refund. But I would make two comments. Firstly, is it not the case that one should not choose an investment solely on the tax benefit? (and this technically not even a tax benefit – its free money for someone who doesn’t pay tax.) Second, super is not meant to be a benefit to your estate by preserving the capital. It is meant to be drawn down to support you in retirement. If you earn a significant amount from the franking credits you have a significant portfolio. Shares on average increase by around 10% per year over time. If you replace the franking credit refund by selling say 3% of your portfolio per year you’re still in front.
    Ken may be a good and knowledgeable accountant. But that doesn’t mean he is not susceptible to a lack of critical thinking leading to cognitive bias and blindspots. Particularly when straying outside his realm of expertise.
    Regards

    Reply

      Michael Yardney

      May 1, 2019 Michael Yardney

      Paul, thanks for the detailed response – with regards to franking credits I’m not sure that you’re right. This also applies to people and companies who own shares

      Reply

    Avatar

    May 1, 2019 Deano

    When Labour took over from Howard they inherited a $10M surplus. Small but a surplus nonetheless. By the time the Labour party handed back the reigns our national debt was over $300B. Yes that is a B. Last year alone the interest payment we all paid was $18B. Imagine if we didn’t have those payments. We would have been in surplus again well before now. Every year under the current Liberal government they have beaten their own forecasts. They can clearly manage the budget and they’ve shown a good track record of unraveling the economic mess they inherited from Labour. They have a plan to pay down debt. If Labour gets in now with our current debt level we are in grave danger of the debt level getting so out of control that it may not be able to be corrected. Mark these words because in my opinion we all can not afford a Labour government (given their horrendous track record economically) right now. Vote the Libs out at your peril. For the record I think both potential PM candidates are extremely poor options. Why can’t we produce a true statesperson in Australia like Barack Obama?

    Reply

      Michael Yardney

      May 1, 2019 Michael Yardney

      Thanks for your thoughts Deano – yes we don’t produce the best statespeople do we?

      Reply

    Kenneth Raiss

    May 1, 2019 Kenneth Raiss

    It’s good to see debate on such an important topic so thanks to everyone. The issue surrounding negative gearing is a complex one. In essence the tax legislation allows a business owner (in this case a property investor) to claim losses on the expectation that they will eventually make a profit and therefore taxed. Disallowing by limiting this cost write off is for all intense and purposes a tax or at best the government is picking which business it supports. The expected outcome of not allowing negative gearing is to reduce house prices, this is the stated objective. As such the policy is intended to reduce the value of everyone’s homes and investment properties. The impact is that fewer people will be in the market to buy and so demand will fall with a corresponding drop in prices. For most people their family home is the bulk of their wealth to hand down on death or to sell to improve retirement income. Reducing this value will have a detrimental effect. While negative gearing will be grandfathered the future price expectation on the property will fall. This is also the case on new property in that the policy will have a negative impact on its value when you sign the contract as any subsequent sale will be subject to the same market conditions as it will no longer be a new property. With fewer investors there will be fewer investment properties (who will make up the shortfall, governments who are spending less and less on social housing schemes or professional investors who will be more commercially orientated) and therefore rents will have pressure to increase to a more reasonable rental yield to recoup costs. This is likely to hurt the very people this policy is looking to help i.e. first home buyers. When you couple the loss of negative gearing and the 50% reduction in the Capital Gains Tax discount it will increase available Government funds which can reasonably be seen as a tax.

    Reply

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    May 1, 2019 Harris Bryson

    Thanks for this information Michael and Ken
    I can’t understand why some would be offended by this – there is nothing factually incorrect with anything you say

    Reply

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    April 30, 2019 John Beattie

    I tend to agree with Dr Nair, I think it is a bit beneath you and your team Michael to be putting forth one side of the argument. Whilst I agree that if implemented in full we are in for a very bumpy ride. Yes the public aught to know about these things but I don’t think it is the role of Metropole to be apparently taking sides. I very much doubt Labour, if elected, will get to pass these policies without considerable amendments either but lets wait till the election is over before commenting further on theory.

    Reply

      Michael Yardney

      May 1, 2019 Michael Yardney

      Great to hear from you John – hope you’re doing well.
      One of the reasons we get tens of thousands of readers to this blog every day is to hear my opinions on how to put themselves in a better financial position.
      Ken Raiss clearly thought it was necessary to inform “the world” of what’s possibly ahead.

      Reply

    Avatar

    April 30, 2019 Dean

    For all those wondering what it’s like to be in a recession… you have to wait too long.

    Reply

      Michael Yardney

      April 30, 2019 Michael Yardney

      Dean – do you mean – we won’t have to wait to long?

      Reply

        Avatar

        April 30, 2019 Dr Nair

        This is mischievous. Currently, we are taxed on income, super and savings – not on homes! Labor is not going to tax our homes. Negative gearing is grandfathered so existing investors are not affected. I don’t vote Labor but try not to put out biased articles – it is praticularly offensive if it comes from so-called professionals!

        Reply

          Michael Yardney

          April 30, 2019 Michael Yardney

          Dr. Nair I can see your point of view but I happen to agree with Ken that the proposed taxes would be disastrous for our economy. The more people that know about the better

          Reply

            Avatar

            May 4, 2019 CJ Hardy

            “the more people that know about (it) the better..” That’s the clarity we’re looking for right there. Thanks Michael.

            Michael Yardney

            May 4, 2019 Michael Yardney

            Thanks for your words of encouragement


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