Following the surprise win by the Liberal party at the recent election, we have a quick look at what the effect will be for markets and taxes.
Simply, very little change is expected, as compared to what might have happened in the event of a Labor party win and overall, it is expected that the Government will continue to push its agenda to reduce taxes, providing some stimulus to the economy.
- Immediate tax off-set for low and middle income earners: $350 Tax Offset for earnings up to $37,000, increasing to $1,080 for those earning between $48,000 and $90,000, reducing to $0 at $126,000 earnings.
- Increase in threshold for the 37% tax bracket to $90,001 from $87,001.
- From July 2022, the income brackets for 19%, 32.5% and 37%, will increase before the 37% tax bracket will be eliminated in July 2024 and the threshold for the 45% tax bracket will increase from $180,000 to $200,000.
- The instant asset write-off was increased to $25,000 from 29 January and then to $30,000 – eligibility has been extended to 30 June 2020.
- The Single Touch Payroll System (STP) has been introduced, effective for large employers already, with small employers (19 staff or fewer) effective from 1 July 2019.
- STP requires employers to report employee PAYG, salary and superannuation each pay cycle.
- Employers need to ensure their software is compliant and ready.
The Governments new first home buyers grant
- This will provide 10,000 new home buyers the opportunity to acquire a property with only a 5% deposit rather than the usual 2% deposit.
- Capped to buyers with income of $125,000pa or less and $200,000pa for couples.
- The amount that can be transferred to a (tax free) pension phase is $1.6m – earnings on this, once in tax free phase, can exceed the cap.
- High income earners (High income earners threshold have dropped from $300,000 to $250,000) will pay additional contributions tax on all contributions made during a year.
- The annual concessional contributions that can be made has been reduced to $25,000pa.
- The non-concessional or non-tax deductible contributions limit has been lowered to $100,000pa (from $180,000pa). If an individual’s balance exceeds $1.6m then none of these contributions can be made. An individual under 65 only, can make 3 years worth of contributions in one year.
- LISTO (Low Income Superannuation Tax Offset) allows individuals on $37,000 or less a tax credit (inside their super) for any taxes paid on contributions.
- Individuals (subject to age under 74) to make tax deductible superannuation contributions.
- Individuals aged 65 and over can make non-concessional contributions to superannuation of up to $300,000 from sale of their home.
- Age levels to make concessional and non-concessional contributions has been lifted to 67 (including paying in 3 years worth), without a work test.
- Spouse contribution age levels have also been lifted from 69 to 74.
Property, Shares and Capital Growth Assets
Reductions in tax, infrastructure spending, the relief of restrictions on lending requirements being forced on banks following the Hayne Royal Commission, falling interest rates and other factors will provide economic stimulus that will likely pause the current correction in housing prices. However, factors, such as the continued reduced lending activity of banks, low wages and low wage growth, the possibility of a drawn out trade war with China, are likely to act to keep the underlying economy subdued, leading to flat house prices and a fluctuating stock market within a small range.
One bright light is the re-election of Narendra Modi in India this week, reflecting a possible ongoing growth strategy within the vast and heavily populated Indian nation, which will no doubt have a significant effect on World growth and the need for food and resources from Australia.
It is important to not to forget that with inflation averaging 3.15% (although currently much lower than this), a flat property market means a negative growth in value due to inflation – this is made worse when you are negatively geared. A recent article in the Financial Review (April 16, 2019), reflecting the results of a study by KPMG, indicated that investors in Sydney (before the correction down) would have been generally better off if they had of invested in the sharemarket instead of property despite record growth numbers.
Construction in Australia is slowing, although the re-election of the LNP may well see this change, however caution is needed.