Here’s a question that has to be asked of both political parties before the election, and it goes like this: “Are you going to take seriously the recommendations of the International Monetary Fund that our family home’s tax break must go?”
And while you’re at it, you need to know whether any of the would-be governments would ever take the IMF’s advice to raise and broaden the GST, which would mean greater income tax cuts.
On current political stances, the first question should go to Labor’s Bill Shorten and his Treasurer-in-waiting, Chris Bowen, as this pair has had the rocks to promise to take away the tax ‘gift’ called negative gearing, to halve the capital gains tax discount for holding an asset for a year or more and saying to self-funded retirees, not receiving a pension: “No tax refund from stocks for you!”
These are the hard men of tax in the modern era and in many ways are gambling, like Dr. John Hewson did and John Howard did with their GST promise before an election. Hewson’s 15% GST was a loser, while Howard’s 10% version was a winner. The size of the tax and the calibre of the selling explain why one John lost and the other John won. But the stories do have relevance for the looming poll.
Sure, a GST on virtually everything from Dr. Hewson was easier to campaign against for then-PM Paul Keating, compared to the Bill and Chris’ crusade against negative gearing and property investors. However, if the Coalition plans to portray Labor as the anti-home owner party, whose policy promises can only send house prices down, then this could lead to other questions that could link Labor to what looks like scary IMF recommendations for many Aussie voters!
In its recent look at Australia and what it suggested was needed, the IMF wants to see the no capital gains tax on the family home phased out!
They like the negative gearing moves from Labor and imply that the capital gains tax-free status for a home should be restricted or limited. This could be based on the price of the home, which might be an option for a government that’s happy to favour the bigger group of Australians who aren’t property investors or self-funded retirees.
Fortunately, Chris Bowen told the AFR that “The Opposition has no plans to touch CGT on the family home”. However, if Josh Frydenberg doesn’t bring this topic up today and every day before the election, then he’s not a politician’s bootlace!
Treasury doesn’t agree with the IMF, arguing that we have a “comprehensive income tax system” and many of the deductions and concessions are linked to the fact that our income tax rates — personal and business — are high on an international comparison basis.
On the other hand, if any potential government could consider the IMF’s idea to increase and broaden the GST to deliver income tax cuts, it would be the Coalition. Malcolm Turnbull canvassed the idea before taking Tony Abbott’s job but as soon as he got the keys to The Lodge, he dumped it as unsellable to the Aussie voter. And Labor has long signed a ‘pledge’ not to increase or broaden the GST, despite most economists, accountants’ groups, government think tanks and independent smarty pants bodies all saying it’s the sensible way to go!
It would take a leader of unchallengeable, irresistible charisma to pull this GST trick off and we haven’t seen a politician of that calibre for a long time. And none seem to be in sight!
And if you want more IMF nightmares, the highly respected body makes the nice suggestion that State-inflicted stamp duty on real estate purchases be dumped but should be replaced with, wait for it, a land tax!
The pointy-head experts say this will increase the supply of houses and reduce prices, which is great for future homebuyers, but try telling a voter in May that as a political party we want to reduce the selling price of your home!
Other experts (not related to the IMF) argue that reducing the load of taxes on developers and killing off stamp duty would increase the supply of housing. But we’d need to get the lost tax money from somewhere else. That’s why a broader and bigger GST slug would help solve a lot of tax and economic problems.
In the absence of a sellable GST, we need to become a more productive country, which implies greater investment in machines, processes and human development.
It might mean changing pay structures and making them more responsive to working harder and smarter. But, once again, asking voters to consider a modern, internationally comparable pay world brings back the nemesis of John Howard — Work Choices!
And the history of Work Choices and the demise of the Howard government means no conservative political party would ever venture into that wage world!