Winning the "unwinnable" election

Articles 21/05/2019
Winning the "unwinnable" election

For the past eight years federal politics have been hampered by the need to negotiate with a fragmented Senate, limiting both sides of politics from implementing policy. For the first time since the first Rudd Government, the Coalition Government has a clear majority in the House of Representatives and a Senate that should respect their mandate.

The Senate vote looks like the Coalition will win sufficient seats so that with the support of the more conservative independent senators they should be able to secure passage of their proposed legislation. Labor and The Greens however, still hold a significant block of Senate seats and so some good debate and negotiation should remain part of the legislative process.

Investment markets love certainty and the election result has seen a significant bounce in Australian equity markets to near 12 year highs. While the ASX 200 was up close to 2% on Monday, the banking, healthcare and health insurance sectors and some real estate stocks were the major recipients of buying support, up in the order of 5% to 10%. The election result, along with potential interest rate cuts, could provide support for residential property prices.

The election result reflects a clear signal that Labor's proposed tax reforms were very unpopular. This will likely result in many of these being reconsidered and likely shelved, hopefully providing us with some policy certainty well beyond this government's term.

To be clear, the result means:
  • We will continue to have excess franking credits refunded
  • Taxing of trust distributions will not change
  • The Capital Gains Tax discount for assets held for more than 12 months will continue to be 50%
  • There will not be an additional 2% deficit repair levy for those on the top marginal tax rate
  • Negative gearing remains
  • There will be no adverse changes to superannuation contribution rules
  • There will not be a limit to the deductibility of accounting fees

While the focus has been on the Labor Party's tax policy, there has been little focus on Coalition tax changes. The Coalition plan to proceed quickly to implement some of its tax and financial reforms, such as:

  • People aged 65 and 66 will now be able to make both concessional and non-concessional superannuation contributions without having to meet the work test. They will be able to utilise the 3 year bring forward rule.
  • Those up to and including age 74 will be able to receive spouse contributions.
  • Additional personal tax rebates for of up to $1,080 per annum starting 1 July 2019.
  • Adjustments to the tax rates so that by the 2024-25 financial year earnings between $45,000 and $200,000 per annum would be taxed at a marginal rate of tax of 30% (currently 32.5% and 37%). 

In recent months the Redwood team has been doing significant planning for all our clients in anticipation of a change of government. Our focus has been to manage the consequences of the reforms. Initially, with a Coalition win it may seem that it is now just "business as usual". However, as you can see from above there will still be some changes and opportunities for us to engage with clients on strategies to take advantage of the Coalition proposals.

One thing is certain, there will always be change.
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