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Reducing subsidies or 'savings' are code for increasing taxes

By Mark Passfield - posted Friday, 4 March 2016

With the current level of Australian debt already exceeding $400Bn and no sight of a balanced or surplus budget in the near future the rhetoric needs to be all about change/reform. The reality is no current Government has the political will to outrightly state they are going to increase taxes. Therefore the contemporary coding is to suggest they are to 'reduce current subsidies' or to 'find savings'. Clearly, if there is an increase in revenue received to the Government without an increase in productivity or participation levels, then taxes are being increased.

The tax reform debate needs to be focused on 'tax mix' and most importantly identifying the best mix to improve productivity and participation. Recently, unemployment has risen sharply and there has been little wage growth suggesting lower participation rates. Presently, the government and opposition are proposing policies around reducing negative gearing subsidies or finding savings in superannuation subsidies. Both are suggested to raise large amounts of revenue. Negative gearing is suggested to raise in the vicinity of $7Bn although there is no creditable suggestion that it will increase economic activity or job growth, some suggest quite the contrary. A simple tax grab is not reform.

Bill Shortens Orwellian rhetoric of finding 'Savings' through reducing subsidies with in his negative gearing policy can be quickly seen for what it is, increased taxes. Australia would become the second highest capital gains taxed country in the OECD after Denmark. Not to mention the damage this would do to the housing industry, being one of the major industries propping up the Australian economy whilst navigating through the reduction in mining activity and economic contribution.


The opposition leader is quick to point out that there is relief for new houses within this ALP policy to ensure that the important job creating construction industry does not suffer. This demonstrates the level of deception in the current speak from politicians in their desperate attempt to raise their public appeal leading in to an election. The flaw in Bill Shortens new house relief is that an investor can only realise a capital gain after they have realise the asset. To realise an asset there needs to be a secondary market for the asset or in this case the house.

The secondary housing market is the one that Mr. Shorten has proposed to increase taxes in. This will have an immediate effect, if it hasn't already, on the resale value of housing assets with a flow on to the new housing market. The majority of investors that utilise a negative gearing strategy are of the middle income bracket. Typically, this strategy is used with a long term view within a retirement plan.

Superannuation is another area of long term view within a retirement plan. Changes to superannuation whether seen to be far by the majority or not will have a negative effect on investor confidence, 'what will they do next', 'by the time I get access to my super they will have taxed any advantage out of it'. Stability in retirement wealth policy is essential to ensure investor involvement. Multi generational planning cannot be overlooked for the short term goal of fixing the current budget crisis.

Both, changes to negative gearing and superannuation have the potential to negatively impact on investor behaviours. Confidence is a major factor when considering long term investments such as property and superannuation. Making changes within these policies areas will reduce confidence and therefore reduce involvement leading to a long term negative effect on the next generation's retirement savings. Tony Abbot's recently stated second law 'that today's borrowings have to be paid for – with interest – by tomorrow's taxes' is very relevant in this current policy push or populist politics. Pushing today's issues on to the next generation is delinquent politics.

After both the Prime Minister and Treasure poured cold water on any GST reform agenda and the Prime Ministers associated polling dropping to a 50:50 position, all politicians need to recognise that Australians want reform. Single layer tax reform with Orwellian statements such as; 'reducing subsidies', and finding 'savings' is not reform but lazy politics. Additional stages are required for the Australian public to recognise true reform. A comprehensive policy plan taking all Australians on a reform journey which includes additional policy development aligning the reduced subsidies with reduced government taxes that will produce growth, such as reducing; payroll tax, stamp duty, and corporate tax rates is essential.

Politicians need to move away from Orwellian statements and coded speak. They need to be honest with the Australia public, and; deliver a holistic multi level tax reform policy, outline the proposed change to the tax mix associated with modelling demonstrating raised revenue through increased economic activity and job growth, build confidence in self retirement investment options through policy stability, produce true budget repair through true tax reform creating business and job growth.

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About the Author

Mark Passfield has an MBA Accounting and Finance and an Academic Medal.

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