Both parties have made tax one of the biggest flashpoints of the election campaign.
The Coalition paints Labor as recklessly increasing taxes and spending, while Labor says its planned higher taxes for investors and self-funded retirees are aimed at reducing “intergenerational unfairness” that hurts younger Australians.
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Both sides have offered modest tax cuts this year for people earning less than $120,000, with Labor offering a few bucks extra each week for some of the lowest-paid workers.
These tax cuts — plus the Coalition’s long-term plans for bigger tax cuts for everyone — won’t have too much of an impact on the outcome of the election, which Labor is tipped to win.
But what may still play a significant role is Labor’s suite of tax hits on retirees and investors, including:
• Negative gearing tax deductions banned for existing properties.
• Higher capital gains tax for future investors by halving the 50 per cent CGT discount.
• Axing self-funded retirees’ dividend franking credit cash refunds.
We are seeing rising resistance to these controversial changes from several angles, and you can bet that the Coalition will ramp up its anti-tax rhetoric in the coming weeks.
However, don’t expect Labor to back down on its policy. It hasn’t deviated from some of these proposals since the 2016 election campaign.
And it will match the government’s attacks with a barrage of its own about how rich property owners, investors and retirees have been benefiting from overly-generous tax incentives that have robbed younger generations and first homebuyers of opportunity.
It’s debatable whether you can class a nurse earning $70,000 a year with one investment property as being rich, or describe a retiree couple as wealthy because they earn $1600 a week from investments they worked a lifetime to build. But, hey, truth is one of the first casualties of war.
A bigger question is what does Labor plan to spend its higher tax revenue on? It’s given us a taste with a big boost to cancer treatment funding, and you can expect many more voter-friendly announcements in the weeks ahead.
Labor will say it sticks up for the battlers. The Coalition says it supports people who are willing to take risks and have a go at improving their lives and others.
If Labor wins, we’re more likely to see extra cash flowing to low-income households and possibly welfare recipients.
While those handouts may frustrate some people, there’s an interesting economic argument that says giving more money to battlers is good for the country because they’re much more likely to spend it — while wealthy people stash it away with the rest of their savings.
Spending the money injects it into businesses and the economy. It could even lead to higher wages. Australia has tried the “give them nothing” approach for several years and wages have gone nowhere.
It’s just one of the interesting angles of the tax war that we’re all going to witness.