Grow Magazine

The election and your hip pocket

June 2016

Before you vote, understand what the cost will be.

Jason Murphy outlines Labor and Coalition policies that may directly impact your finances.

In this year’s federal election there’s big differences in policy between the two major political parties. Here, we look at some of the key differences that may have the most direct effect on you – the hip-pocket policies from the two biggest players.

Investing

ALP

Perhaps the biggest policy difference between the two sides this election is the Australian Labor Party’s proposed changes to negative gearing and capital gains tax.

Basically, under a Labor government, you won’t be able to negatively gear property investments, except for new properties. This, SQM Research concluded, could see house prices come down in the next four years. Labor leader Bill Shorten has said it will "level the playing field for first-home buyers".

It also plans to change the capital gains tax discount for assets held for a year or longer. The discount will be cut from 50 per cent to 25 per cent. Instead of getting half off the tax bill on capital gains, investors will get a quarter off.

These proposed changes apply only to future investments, not existing investments.

COALITION

Proposing no major changes.

Superannuation

ALP

Both sides are proposing changes to superannuation to raise revenue.

The ALP will tax high incomes drawn from superannuation. People with more than $1.5 million in super will still have tax-free earnings up to $75,000 but they will pay 15 per cent tax on earnings over $75,000 under the policy. The change will affect an estimated 60,000 people

Labor also plans to change super tax arrangements for some people who have not yet retired. Contributions to a superannuation account will be taxed at 30 per cent (instead of 15 per cent) for people earning more than $250,000 (instead of $300,000).

COALITION

If the Coalition wins it will try to pass changes announced in the budget.

One of those is a change to the maximum amount a person can move into a tax-free account to fund their retirement. From July 1, 2017, the cap would be $1.6 million, compelling people to keep amounts above that in a separate account and be taxed at 15 per cent. The government stated at budget time that “the cap will index in $100,000 increments in line with the consumer price index, just as the age pension assets threshold does”.

It will also limit yearly pre-tax super contributions to $25,000.

The other change is a limit on voluntary after-tax contributions to super. Instead of an annual limit of $180,000, they are proposing a lifetime cap of $500,000. Earnings on these contributions are taxed at a flat-rate of 15 per cent in accumulation accounts and then become tax free when transferred into a retirement account.

Prime Minister Malcolm Turnbull says the changes will make sure “ the system is fairer and more fit for purpose”.

Income tax

ALP

The Labor Party has promised to keep higher tax rates for people earning over $180,000, by retaining the 2 per cent temporary “deficit levy” introduced by former prime minister Tony Abbott.

COALITION

The Coalition plans to remove the deficit levy.

(Both sides support a range of other changes to income tax rates, including lifting the threshold for the 37 per cent marginal rate from $80,000 to $87,000. This article does not attempt to list all areas of agreement, just the key differences between the two major parties.)

Childcare

ALP

The ALP will increase the childcare benefit by 15 per cent for middle and low-income families. The cap on the childcare rebate will be increased from $7500 to $10,000 per child.

COALITION

The Coalition is proposing a means-tested subsidy of 85 per cent of childcare fees for families earning up to around $65,000 and tapering off after that.

It would be uncapped for families earning less than $185,000 and capped at $10,000 for families earning more. Eligibility would be determined by an activity test. It would replace the childcare benefit and the childcare rebate with a single system.

Education

ALP

Labor is offering to write off the HECS-HELP debt of 20,000 students each year who graduate with a degree in science, technology, engineering or maths.

But it will lower the threshold at which Australians repay their HECS debts from around $54,000 to around $50,600.

COALITION

The Coalition has abandoned a Tony Abbott-era plan to fully deregulate university fees. But it will allow universities to deregulate fees on some “flagship” courses. If such a policy can navigate the Senate after the election, the cost of some of the most popular undergraduate degrees could rise.

Paid-parental leave

ALP

Labor is offering 18 weeks pay at the minimum wage to eligible parents.

COALITION

The Coalition says primary carers earning less than $150,000 a year are entitled to receive up to 18 weeks of parental leave pay at the minimum weekly wage of $657.

To achieve this it says it would cut back the existing government paid parental scheme and instead supplement employers' paid parental leave schemes to ensure new parents receive the total of 18 weeks of paid leave.

Healthcare

ALP

The ALP will reintroduce indexation of Medicare rebates for healthcare providers. The rebates were frozen in 2014, meaning the amount paid to doctors for treating patients has not risen. In some cases this could mean price hikes for patients.

Private health insurance will go the other way. The ALP has promised to freeze the rebate paid to consumers for their private health insurance premiums. It would also remove the rebate for natural therapies. This is expected to save billions in the next five years.

COALITION

The government will keep the Medicare rebate freeze to healthcare providers in place until 2020.

Family tax benefit

ALP

The ALP will cut a $750 annual payment to families in half. The payment is an end-of-year supplement for families eligible for Family Tax Benefit A. Over 100,000 families will be affected.

COALITION

The Coalition will abolish the end-of-year supplement for families eligible for Family Tax benefit A and B by 2018. This would affect almost 2 million families.

But it will lift the fortnightly payment under Family Tax Benefit A by $10 a fortnight.

Note: Policies announced during the election campaign are proposals of that party and are subject to legislative approval should that party win the election. As such, the announced policies are subject to change or withdrawal. These policies are planned to come into effect at various stages between July 2016 and July 2018.