The month of April was positive for investment markets. The All Ordinaries index gained by 2.5% to close the month at 6,418.4 points. The Australian Dollar fell marginally, with 1 Australian Dollar buying 70.48 US cents as at the end of April.
The Reserve Bank of Australia (RBA) board kept the official Cash Rate on hold at 1.50% per annum in April, however there is growing momentum for the RBA board to cut interest rates as early as next Tuesday.
For the month of April, the United States Dow Jones index gained by 2.6%, the London FTSE gained by 1.9%, the Japan Nikkei 225 gained by 5.0% and the Hong Kong Hang Seng Index gained by 2.2%.
During the month, the Federal Government delivered its 2019 Budget and also announced the Federal Election to be held on Saturday 18 May. The Australian Labor Party remain clear favourites to form government ($1.30 favourites according to Sportsbet today versus $3.50 for the Coalition).
The Australian Labor Party is campaigning largely on the back of a platform of tax changes, climate change policy and also a redistribution of social security benefits (childcare costs for low income earners, dental costs for seniors etc.).
The key pillars of the Australian Labor Party tax changes are summarised below:
- Increasing the top marginal tax rate to 49% until 2023,
- Reducing the income threshold for Division 293 High Income Superannuation Surcharge to $200,000 per financial year (currently $250,000),
- Limiting negative gearing tax deductions to only new homes purchased from 1 January 2020,
- Halving the capital gains tax discount for all assets purchased after 1 January 2020,
- Removing dividend imputation (or franking) credit cash refunds (with carveouts for social security recipients),
- Implementing a minimum 30% tax rate on discretionary trust distributions to adult beneficiaries,
- Reducing the superannuation non-concessional contribution cap to $75,000 (currently $100,000),
- Abolishing the recently introduced “catch up” concessional contributions,
- Abolishing the recently introduced ability for employed persons to make personal tax-deductible superannuation contributions,
- Abolishing the ability for Self-Managed Superannuation Funds to borrow under a Limited Recourse Borrowing Arrangement.
The above changes to the top marginal tax rate and reduction of the Division 293 income threshold alone, if legislated (which will largely depend on the composition of the Senate), will see a person with a salary of $250,000 per year (including super) pay an additional $4,046 per year in tax.
It certainly will be an interesting two and a half weeks of election campaigning. Whether you agree with the proposed Australian Labor Party tax changes or not, you must at least give them credit for being brave!
I suspect that the Australian Labour Party would have had a much easier path to form government had they "done nothing" and not put forward an agenda of such polarising tax changes.
For more information, please contact Ryan Love on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.