2019 Federal Election – Economic Liberalism or Social Democracy?
With seven Prime Ministers in ten years, it is easy to understand why some voters have stopped listening.
Over this period of political inconsistency, it has been difficult to differentiate between political leaders, what they stand for and where the traditional party lines lay.
However, this 2019 federal election is different. It has become a classic contest between traditional Liberal and Labor values, between economic liberalism and social democracy.
The Australian Labor Party is planning to make some brave and far reaching changes to Australian Taxation, many of which are aimed directly at property as vehicle for investment. This is intended to increase government revenue, which can the be used to fund Laborâs social policies and help to âredistributeâ wealth in Australia.
If Labor wins the election, they are promising to:
- Clamp down on the practice of negative gearing with investment properties. Negative gearing will only be possible with newly constructed properties after 1st January 2020. (existing investments will remain unchanged).
- Capital gains tax concessions will be reduced by half. Under existing Liberal rules the capital gains concession applies to 50% of the capital gain after 12 months. Under Labor it will be reduced to 25%.
- Labor will reverse the Coalitionâs proposed income tax cuts which are planned to be rolled out over the next four years.
- Labor is planing to reduce tax concessions for Superannuation funds. Self managed super funds can be used as vehicles for property investment.
- Trust funds will also be targeted for increased taxation.
- Support for low and middle income earners will be increased.
- A 2% levy on incomes over $180,000 will be re-introduced by Labor.
- Franking credits will be stopped for shareholders that do not pay tax.
- While the Coalition is planning to reduce taxes and simplify the tax system, the Labor Party are proposing to reduce tax concessions and close tax loopholes.
Whatever your political inclinations, it is interesting to keep in mind that these proposed changes may have a negative impact on property values in Australia. This is off the back of 18 months of negative growth. Over 2018, Sydneyâs property values have recorded their steepest decline in 20 years, falling 10% across the board. Some pockets of the Sydney housing market have recorded much higher falls in value, especially in the new unit market. At Sydney PrePurchase Property Inspections, we have heard anecdotes from clients that tell a much more worrying picture. One client purchased an investment unit of the plan in western Sydney 2 years ago based on a valuation $650K. Now that the unit is complete, the final bank valuation came in at $410K. This equates to a 37% loss in value over 2 years. In addition to falling property prices, the banking Royal Commission has significantly âtightenedâ lending practices in Australia. Banks are lending significantly less on the same property, compared with 2 years ago. Some say this difference is as much as 20%. This is a âdouble whammyâ of falling values and reduced access to money. The wealth of most Australians is asset based, and for the average Australian this asset is property. When you take into account the increasing cost of living and wage stagnation, it will be interesting to see how Australia responds to these complex issues on Saturday 18th May 2019.
Whatever the results on Saturday, use professionals when carrying out a Building & Pest Inspection for your Sydney property.