The Australian Federal election is only a week away and, given the polls, it is a scary thought that Bill Shorten could be Prime Minister and Chris Bowen our Treasurer. They claim that they “put people first” yet their record, under our worst ever Prime Ministers Kevin Rudd and Julia Gillard prove otherwise. During those years, in order to pay for their waste, they:

• Abolished the Net Medical Expense Offset. This took away the ability to get a little bit of tax relief for those whose “out of pocket” net medical expenses were exceedingly high;
• Removed the Dependent Spouse Rebate for those households which relied on only one income;
• Removed the ability of minors to access the low income tax offset. This ensures that children under 18 years of age are taxed at the highest marginal tax rate on their “unearned income” that exceeds $416;
• Increased the Medicare Levy by 0.5%;
• Reduced the deductibility of self-education expenses.

According to Terry McCrann (Herald Sun, May 31, 2016, p25) Chris Bowen, the likely Treasurer under the potential Bill Shorten government, believes that Wayne Swan, who presided over six budgets and six budget deficits, totalling $240 billion, a federal government debt which now stands at $427 billion and an interest bill of $1 billion per month ($12 billion per year – but would be much more except for our low interest rate environment) is one of our best ever treasurers. He promises to do more of the same.

Let us consider some of the policies with which Labor is going into the 2016 election:

Banks’ Royal Commission

Bill Shorten, in a populist move, has suggested a Royal Commission into Australian banks. This would be an extraordinary waste of money given that we have regulators to enforce Australian laws. Australian Prudential Regulation Authority (APRA) sets the prudential standards by which they operate and the Australian Securities & Investments Commission (ASIC) ensures compliance with Corporations and Financial Services laws. They will deal with breaches.

The other worrying aspect of this proposal relates to our banks’ reputations in world markets. Banks borrow internationally and the rate at which they receive this funding is dependent on their credit rating and international reputation. Anything that discredits this reputation may increase their cost of borrowing and, as a result, the rate that we are charged for our loans.

Negative gearing

Australian Labor Party (ALP) is intending on limiting negative gearing “benefits” to newly built properties and deny them on existing ones. The intended effect of this will be the reduction in the value of established properties, reducing the value of your homes and existing investments. That doesn’t seem like something one would want to vote for.

Established properties, including your homes, will fall in value because this policy removes a whole lot of potential buyers from the market. Fewer buyers mean lower demand and lower demand leads to lower values.

Supposedly there will be more competition for newly built residences. However, a prudent investor will consider all of the costs and benefits of owning an investment property. This means not only the effects of negative gearing but the potential gain or loss on the sale of the property. The same property on which negative gearing was available will now not be available upon sale to someone else. This removes a significant amount of demand from the market, reduces prices and gains (or creates capital losses). Therefore, it is unlikely that Labor’s policy will increase demand for newly built residences.

Since the end of the mining boom Australia’s construction industry has been the backbone of our economy. This negative gearing policy has not been properly considered and will lead to disaster for property values and the construction industry. There may be significant consequences for employment in construction.

Reducing the capital gains tax exemption

Currently we have a 50% exemption on the taxation of the capital gain on a capital asset held for longer than 12 months. ALP policy is to further reduce this exemption by 50% (down to 25%). This means a higher amount of Capital Gains Tax (CGT).

This is the first step to eliminating the CGT exemption altogether and, should Labor be elected, means higher collections of CGT. There have been rumblings within the Labor party about the CGT exemption for our homes (principal private residence exemption). It would not surprise that before too long Labor would be taxing our homes as well.

Combined with the attack on negative gearing think about the effect on property markets, on the value of your homes and investment properties and on the construction industry. It is scary.

Penalty Rates

It was the ALP that established the Fair Work Commission (FWC). The FWC is currently looking at the issue of penalty rates. The coalition government said that they would respect the decision of the FWC. Bill Shorten also said that Labor would respect the decision of the FWC. What is the difference between the two policies? Yet, ALP is advertising a policy of protection of penalty rates. How are they going to do this and still respect the decision of the FWC (if it is decided, as it should be, that penalty rates make our economy less competitive and should be abolished or reduced)?.

Education

Current spending on education and training is $39 billion or 8.6% of total government expenditure. This is estimated to rise by almost 14% over the 4 years to 2019-20 (2016 Budget Statement No 1). Labor’s policy is to spend significantly more but it is not necessarily the amount spent (most of which will go to paying increased wage demands by teachers) but how wisely it is spent that really matters.

The spending on Education and Training, Health and Social Services currently amounts to $228 billion or 50.5% of total expenditure. In addition to the 14% increase in expenditure on education over the next 4 years it is forecast that Health will increase by 9.7% and Social Services by a further 15.6% (2016 Budget Statement No 1). Given the mount of spending on these items, and the forecast increases, it must be understood that spending in these areas limit the ability to spend in others. We should be careful in promising unaffordable and increasing expenditures. Perhaps we should be looking for ways to spend smarter and not necessarily more.

Additional Initiatives

Today ALP announced further tax increases by limiting deductions on managing tax affairs and the removal of the private health insurance rebate on hospital only health insurance policies. They also revealed higher deficits and government debt.

Those who can only afford hospital cover will be subject to additional cost and probably have to withdraw from private cover and into the public health system. It is quite likely that this will make the public health system much more costly and burdensome.

The limitation of deductibility of costs of managing tax affairs is a further burden on business.

Privatising Medicare

The ALP have no worthwhile policies so they have started a negative campaign suggesting that the coalition government will privatise Medicare. Bill Shorten was asked to put a hand on his heart and state categorically that a coalition government will do it. He didn’t and couldn’t but Labor continues to run this campaign because they have nothing else. It is lie and they are willing to continue the lie.

Medicare cannot be privatised because the Medicare Levy is imposed through the taxation system. The taxation system cannot be privatised. The Australian Medical Association (AMA) has rebuked Labor on these privatisation claims saying that there is no evidence of anything of the sort. (Sydney Morning Herald, June 22, 2016)

Conclusion

The Australian Labor Party (ALP) have no worthwhile policies going into the 2016 Federal election so they have focussed their effort on a lie about the privatisation of Medicate. Their policies are, in fact,  detrimental for business and the construction industry, on which, since the end of the mining boom, we have placed so much reliance.

Today we are 17th on the IMD World Competitiveness Scoreboard (Yahoo 7 Finance, June 3, 2016) and 20th on the list of 50 most innovative nations in the world (Bloomberg, Jan 20, 2016). For future prosperity and employment we need to become more competitive and innovative. Business will go where it is wanted, where government policies make business welcome. The United Kingdom corporate tax rate is 20% and we need to be competitive with them, and countries which, like them, want to attract businesses.

ALP policies do not make business welcome but the Liberal and Coalition policies do. The reduction in corporate tax rates will increase our world competitiveness and attract business. More business will mean more employment, increased tax revenue and the ability to fund better education and social policies. Under Malcolm Turnbull our economy is much more likely to become more innovative and attract further business and create employment.

What is the use of enormous spending on education when graduates will need to go overseas to find jobs. ALP claims that they “put people first” yet it is people that already have suffered, and will in the future, suffer the consequences of a potential Labor government. ALP policies will be detrimental for Australia and we cannot now afford another 3 years of Labor government. Please vote wisely.