The two major parties are coming into this election with significantly different tax policies. Labor plan on introducing a raft of tax increases affecting super, small businesses, retirees and high income earners while both parties will implement tax cuts for low and middle income earners.
Liberal Tax Policies
The Liberal party have proposed very few tax changes at this election. Their main proposal to introduce tax cuts for low and middle income earners has been matched by the Labor party and will go ahead either way. Their other major proposal is to remove the 37 percent tax bracket and to lower the 32.5 percent tax bracket to 30 percent for individuals but these changes wouldn't apply until 2023.
The Liberal policies that could impact you in the short term are:
- An increase in the age at which you are able to voluntarily contribute to super without having to meet a work test from 65 to 67
- An increase in the age limit for spouse contributions from 69 to 74.
Labor Tax Policies
The Labor party have proposed many changes that increase taxes and remove concessions along with proposing the same tax cuts for low and middle income earners as the Liberal party.
The main Labor policies that could affect you are:
- Removal of franking credit refunds (for more on this measure see our article titled Understanding franking credits and how they impact you)
- 30% minimum tax rate on discretionary trust distributions including small businesses
- A 2% increase to the top marginal tax rate for individuals to 49%
- Negative gearing restrictions for existing real estate and other investments including shares purchased after 1 January 2020
- 50% Capital Gains discount reduced to 25% for investments purchased after 1 January 2020
- A $3,000 cap on deductions for management of tax affairs
- Introduction of an Australian Investment Guarantee allowing all businesses to immediately deduct 20% of the value of eligible depreciable assets with the remaining 80% deducted over its useful life. This would replace the existing instant asset write off that allows small business to immediately deduct 100% of the value of eligible assets costing under $30,000.
- Non Concessional super contributions cap to be reduced from $100,000 to $75,000
- More people will be caught by an additional 15% super contributions tax with the income earning threshold decreasing from $250,000 to $200,000
- Abolish catch up concessional contributions
- Removal of deductibility of personal super contributions for employed persons
- Prohibition of borrowing by Self Managed Super Funds.
While Labor claim that the above policies only affect the "top end of town" many of these policies will have a significant impact on lower income earners and small businesses. The minimum tax rate for discretionary trusts could potentially result in a small business run by a couple with $75,000 annual profit having their tax bill increase by $15,031. A retiree couple with $40,000 of dividend income received through a trust could have their annual tax bill go from $0 up to $12,000.
If Labor do win the election they are still likely to face strong opposition in the senate on many of these policies. Only half of the senate are up for election this time which will make the task harder for Labor to combine with the Greens to pass legislation without relying on the support of cross benchers. The Greens have announced they support most of Labor's tax policies. There are four existing cross bench senators who do not need to contest this election, being two members of the Centre Alliance as well as Cory Bernardi and Pauline Hanson. They could be joined on the cross bench by several members of Clive Palmer's party, further One Nation senators and/or Jacqui Lambie. All of these possible cross bench senators have announced they do not support removing franking credit refunds although I suspect that some may approve it if there is a threshold introduced where you can claim back up to a certain amount. All of the above possible cross bench senators have also expressed their concerns about the timing and impacts of Labor's negative gearing restrictions but they have been largely silent on the other proposals. For what it is worth, Clive Palmer has said that his party will oppose all of Labor's major tax proposals.