The question I keep getting from subscribers, financial planning clients, readers, listeners and TV viewers – even when I’m in the street! — is can the Coalition win? I guess many of these inquirers are people who need tax refunds linked to their investments’ franking credits, small business owners worried about higher wages under Labor and they could be investors who think they could make some money on Bill Shorten in the short-term!
More on these people after I lay out what I think investors should know for the rest of 2019 and this timeframe is really important for the first time ever! Yep, we in the media and the market make calls around the performance of stocks and markets ending on December 31 for no real good reason apart from the fact that a year is an easy and very usable time period.
The important period for investors and business is the financial year, not the calendar year but this year January 1 is a really important marker, if Bill Shorten becomes PM.
You see on that day the rules on negative gearing change. An investor in a new property gets to claim the losses from being in an investment property against his or her income. On the other hand, if an investor buys and existing property on January 1 or after that day, the losses can’t be used to make the deal tax-effective.
This makes existing properties less attractive to investors and it should lead to lower prices and/or slower growth of prices for these sorts of properties. Any owner of a property should conclude that these changes, while good for people selling new properties, they are bad if you are selling old ones.
Also, if you try to sell your new property, say in two years’ time, it is no longer new and so investors would have less interest in it as they can’t use losses and negative gearing to their advantage.
Also if you sell this new property in two years’ time, the capital gains tax discount will be reduced from 50% to 25%, so you pay more tax on a property bought after January 1.
I think that there will be a rush for stocks and property after the election if Bill Shorten wins, with financial advisers and accountants telling their clients that any asset bought before January 1 will have a 50% capital gains tax discount. And these could be held for a long time because of their 50% discount status.
The impact of these rule changes could mean Bill is good for stock and house prices until January 1 but after that prices could fall off a cliff!
I believe the Reserve Bank could be wondering if they might need their interest rate cut ammo for after January 1 and so it will be hoping that the second half of this year brings and economic rebound.
Former chief economist at ANZ and now at the UTS Business School, Warren Hogan, expects the economy will pick up in the second-half of this year. On my Money Talks show last night, he explained both the local and overseas economic outlooks are on the improve. He was polite enough not to bag the IMF, which recently downgraded the global and Australian economic outlooks, but like me he knows these guys get onto reality rather late!
So to the initial question — can the Coalition win?
I interviewed Malcolm Mackerras on my Switzer Show podcast yesterday and he admits this is the hardest election to call with certainty.
He thinks Labor will win but he says the Coalition has a one in three chance of surprising pundits. On Newspoll’s 52%-48% two-party preferred score, Labor plus the Greens plus Andrew Wilke plus Jacqui Lambie will give the non-Coalition forces 83 seats while the Coalition and its allies should collect 68 seats.
Meanwhile he suspects the Senate will not make life easy for Labor to get some of its controversial laws passed and we now know the likes of Zali Steggall and Kerryn Phelps, both running for a lower house seat, won’t support Bill’s tax changes.
So given all of this, is this the right time to invest?
If I was buying property I’d be turning up to auctions to try and get a bargain. I think a base is forming where house prices have been dropping in Sydney and Melbourne and I can’t see the economic reasons for another big leg down until January 1.
That really could prove to be a troublesome date for property and stock owners and it could easily rest on the Senate to make sure that Labor does not pass into law their anti-investor policies when markets are vulnerable.
I don’t like Labor’s franking credits, negative gearing and capital gains tax policies but they could be absorbed by the economy at the right time. And because Labor’s Bill Shorten and his would-be Treasurer, Chris Bowen, can’t see that, it worries me.
Let’s hope the Senate collectively prove to be smarter when it comes to policy and the economy.
Of course, all of this worrying by me might be of no consequence if the one in three chance of a Coalition win comes along. But for that to happen, Scott and the team will have to lift their marketing and fast!