A date has been set for the Australian 2019 elections: 18 May 2019. On this date, Australian voters will be filling 131 seats in the House of Representatives and 38 seats in the Senate. It is a critical time with these politicians becoming responsible for enacting significant policy decisions in the future, which will have a tremendous impact on the Australian economy and property market.
As a country, Australia is currently facing important issues that need to be addressed. While its economy is strong, household debt has increased dramatically. Wages are rising slowly and, perhaps more urgently, housing prices are believed by some to be on the precipice of collapse. Policy makers have a large amount of control over this situation, and it’s a complex and controversial topic.
Over the past decade, Australians have witnessed the Prime Minister changing more frequently than expected. The 2019 Australian elections will have two major impacts.
First, it will elect a Prime Minister who is set to finally remain in place for a full term. Second, it will elect representative and senate seats who have the task of dealing with Australia’s current economic, climate, and housing matters.
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While most Australians know the basics of negative gearing and capital gains tax discounts, it’s a fairly complex topic with many long-term implications. Capital gains tax refers to taxes on profits that are achieved by buying and selling assets, such as investment properties, shares or businesses . Discounts on capital gains taxes make investment properties an attractive way of making money, as these profits achieved from the capital growth in the property value is taxed at a far lower rate.
Meanwhile, negative gearing is a method of deducting losses on an investment property in order to pay less in taxes, even losses not associated with the investment property interest loss but all expenses related to owning the property. Negative gearing reduces risks for landlords whilst increasing net overall returns and, again, makes investing in property a far more attractive concept.
As one of the most heated and contested issues, the Australian Labor Party (ALP) seeks to reform capital gains tax discounts and negative gearing. If the Labor Party is successful, the capital gains tax discounts would be removed essentially doubling the tax investors pay on property growth, and negative gearing would only apply to new developments which currently represents a very minor segment of properties sold.
The ALP believes that this would dissuade some investors from making purchases, which would stop them from artificially increasing real estate prices.
Real estate prices in Australia have been booming for some time and have only recently started showing some signs of instability. With lower rates, first-time home buyers would be able to purchase homes that they’re currently priced out of.
The Coalition, on the other hand, believes that all this will do is lead to the costs of renting going up. It may also price casual mum-and-pop investors — such as those investing during their retirement — out of the market while keeping investors with larger pockets. The Coalition is in favour of keeping negative gearing and capital gains discounts in place for this reason.
For the Coalition, the fear is that investors are presently supporting the rental market in many areas. Without investors, these areas are not going to be kept maintained and developed. With fewer investing in the market, the results could be unpredictable. And by negative gearing only applying to new developments, it could encourage investors to spend more money on newer developments, which would become more attractive and therefore reduce the value of older homes.
Analysts are split regarding the true impact of these negative gearing and capital gains changes because it’s such a complex topic with so many factors. Australian homeowners, first-time home buyers, and investors all have a stake in this election and should work hard to determine which option is most ideal for them and for Australia.
As you can see, negative gearing and capital gains tax benefits are very controversial, and different analysts believe different things. Here’s what you should know:
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