2 September 2010
Recent weeks have provided a lifetime of enjoyment for political buffs. With neither the Australian Labour Party ('ALP') nor the Coalition being able to secure the seventy six seats required to form government in their own right, negotiations with the minor parties and independents have taken centre stage.
Investment News will leave the political prognostications and pronouncements to others. Instead, this issue focuses attention on the key differences between the parties when it comes to tax-related issues. And, as any canny investor will note, the differences could be significant.
The ALP proposed to gradually increase the compulsory superannuation contribution to 12% by
2019-20. It would also release a full response to the Cooper Review of superannuation and introduce a low-cost default superannuation product, MySuper, from 1 July 2013. It would introduce new standards for storing collectables and personal use assets held by self-managed superannuation funds.
The Coalition proposed to ensure superannuation contributions at the mandatory 9% are paid whilst women are receiving Paid Parental Leave. They also proposed to respond to the Cooper review recommendations before the end of the first term.
The ALP proposed to offer taxpayers automatic deductions of at least $500 in lieu of claiming work-related expenses and the cost of managing tax affairs. They also proposed to expand Tax Rebates to include school uniforms, increase benefits for families with teenagers aged 16-18 and offer a 50 per cent discount on interest income.
The Coalition also sought to expand the coverage of the Education Tax Rebate, but opposed the discount on interest income. Instead, it flagged a tax reform agenda to deliver a lower, simpler and fairer personal income tax regime. It also flagged a 10% tax rebate for income from investments to new 'Infrastructure Partnership Bonds'.
The ALP's Resources Super Profits Tax ('RSPT') certainly attracted a lot of comment in the lead up to the election. Its watered-down successor, the Mineral Resource Rent Tax ('MRRT'), remains a difference between the parties. The Coalition has taken the opposite approach, proposing the introduction of an exploration development program to provide tax credits to shareholders for 'greenfields' exploration expenses in Australia.
The ALP has also proposed a company tax reduction for small business companies to 29% in the 2012-13 income year, with all companies having the reduced rate from 2013-14. The Coalition has targeted a 25% company tax rate, but offered no concrete timetable for achieving this. In the short-term, the Coalition proposes to reduce tax to 28.5% from 1 July 2013, with a parental leave scheme funded by a 1.5% levy on companies with taxable incomes in excess of $5 million.
Henry Review reforms
The ALP's most significant response to the Henry Report was a list of policies that it would not implement at any stage. These included policies including the family home in means tests, introducing land tax on the family home, hitting single income families, removing the Medicare levy, removing dividend imputation and broadening the base or increasing the rate of the GST.
The Coalition targeted transparency and proposed to release all costings, modelling and other data underlying the Henry Review within 30 days. Like the ALP, they promised not to introduce a number of the recommendations, including new taxes on business activity, scrapping the private health insurance rebate, introduction of a bequests tax, removing the Medicare Levy, including the family home in means testing, hitting single income families, removing dividend imputation and so on.
Neither party has provided a satisfactorily comprehensive response to the Henry Review although both have shown proposals which are unacceptable to them. However, there are some significant differences between the parties, particularly in the area of corporate tax. With the prospect of forming government still open to both parties, it has never been more important for investors to keep informed as to the differences between the parties and the likely impact that these differences will have on portfolio performance.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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