Prime minister Scott Morrison pulled off a shock win on Saturday, and is expected to go on to form a majority government, which means Labor’s tax policies are well and truly out the door.
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KPMG chief economist, Brendan Rynne, says the re-elected Morrison government will be tasked with getting Australia’s clearly slowing economy going again, and while the upcoming tax cuts might help, they’re not enough.
What's staying the same?
Labor’s tax policies are out.
This means the dividend imputation system will remain untouched, and retirees will still be able to take advantage of franking credits.
Labor’s policies on negative gearing and the capital gains tax are also axed, so it’s full steam ahead for property investors.
According to director of tax communications at H&R Block, Mark Chapman, there won’t be a lot of drastic changes.
In fact, in the short-term Australians can expect just some income tax cuts, which reduces the personal income tax for all individuals earning up to $126,000 per year.
But, Scott Morrison has been forced to concede that it would be difficult to legislate income tax cuts for 10 million workers before the 1 July deadline.
The Coalition is planning to make additional changes to personal taxes in 2024-25, but given it’s several years away, the key takeaway is really just the upcoming change.
Given tax time is coming up very soon, Chapman says the government will need to get its skates on to implement the changes.
But, other than that, Chapman says the Coalition has quite a light policy agenda, and there aren’t “any nasties” lurking in the undergrowth.
The only other key measure is the extension and enhancement of the instant asset write-off, which is already locked in.
Retirees and property investors who have retreated from investing as policy remained uncertain in the lead up to the election, can now act.
Chapman says there’s no need to rush into buying a property because there aren’t any forthcoming changes, but still urges Aussies to be wary as there’s no guarantee the government won’t make further changes while they’re in power.
What does it mean for our economy?
Looking beyond personal taxes, KPMG’s Rynne says the RBA is likely to drop the cash rate in the next couple of months, and the government still faces the challenge of getting positive real wage growth.
Rynne says while company tax reform is still too difficult to achieve, the government needs to achieve proxy tax reform.
“We’ve seen the significant benefit of immediate tax write offs on stimulating investment in the US," he says.
"The Morrison Government should be trying actions like these that reinvigorate investment and jobs growth by the private sector.”
Balancing fiscal responsibility with promoting growth through government spending will also be a short-term challenge for the Liberals, and it might mean the government will need to spend more to help stimulate the weak economy than it had anticipated.
On the global front, balancing the trade war negotiations with our largest defence ally (US) and our biggest trading partner (China) will also prove a challenge.
“We just need to play a straight bat,” Rynne says.
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