Expect Pain on Tuesday

[landlubber]

It really bugs me when I read this on the news.com.au

Pushka, I agree with you 150% !! ... Plus when you read that the surplus is already forecast at $20B ...AND further, they invariably under-estimate the surplus ... makes you wonder when the collector of taxation will say "enough" ! ( I have read he'll be happy when taxes are 100% of incomes, but even that probably won't be enough when we get there ...)

LL

 

[landlubber]

I bet the government was not happy that year...

MissMuffitt, the stuff you can read on this episode and why the decision was reversed is confusing. Some info. says rents went "through the roof" ..other articles say rents went through the roof because that was the cycle we were in at the time (...must have been a bit like now). But it does seem, from what I have read, that, with no neg.gearing investors did desert the new construction market and the gov. then reversed their decision to stimulate the building industry. Perhaps others can elaborate...in any case it didn't last long ...that we do know!

LL

 

[WinstonWolfe]

It may very well be Labor's game plan after dumping the cgt concession, to use those dollars to fund tax credits for affordable rental properties, as outlined here.

Suppose Rudd will consider more govt housing as outlined in their initiative "New Directions for Affordable Housing".

And so the cycle starts again towards bigger more interfering, less efficient govt.

 

[Aaron Sice]

Pushka, I agree with you 150% !! ... Plus when you read that the surplus is already forecast at $20B ...AND further, they invariably under-estimate the surplus ... makes you wonder when the collector of taxation will say "enough" ! ( I have read he'll be happy when taxes are 100% of incomes, but even that probably won't be enough when we get there ...)

LL

then a second lung and kidney will be a "perk" for high income earners....

 

[Aaron Sice]

It may very well be Labor's game plan after dumping the cgt concession, to use those dollars to fund tax credits for affordable rental properties, as outlined here.

Suppose Rudd will consider more govt housing as outlined in their initiative "New Directions for Affordable Housing".

And so the cycle starts again towards bigger more interfering, less efficient govt.

ah well, at least can look forward to a good 10 years of "Accumulation phase" for our portfolios before the next quadrupling boom of 2017*....







* = date purely for rant purposes only. no fundamentals for this.

 

[willair]

I didn't vote for them but my view is let's wait and see.

It will be an interesting few weeks on the ASX,come monday morning plus with the now sky-high price of Oil,plus the demand for higher wages,from both public servants and several trade unions,I just hope that the Rudd Government thinks about what they are about to do,as the economy is slowing a lot quicker then MrRudd-Swann thinks..willair..

 

[josko]

The Treasurer will present the deep cuts as the most substantial reform of tax concessions in a decade and argue that the Coalition had given too much taxpayer assistance to higher-income earners who did not need it.

Labor's first federal budget in 13 years is being framed as a stepping stone for broader tax, welfare and retirement-income reform to be delivered in stages over this term and beyond the three-year election cycle.

Mr Swan refused to disclose details of any cuts, but said that taxpayers deserved an equitable budget.

"Australian families who work hard and pay their fair share of taxes have every right to expect a tax system that is as efficient and as fair as possible," he told The Weekend Australian. "People who get up and go to work and pay their taxes expect everyone else to do the same." The crackdown on tax concessions follows an exhaustive razor gang review of more than 300 so-called "tax expenditures" - the phrase Treasury uses to describe tax breaks, incentives, offsets and exemptions that drained more than $51billion from the federal budget in 2007-08.

And so any of us on higher incomes are not hard working and don't pay our fair share of taxes?

Shame on us for supplying housing to the poor people on welfare who can't afford to buy their own houses.

I say we go on strike!

Let's leave the country to be run by the hard working people who get out of bed and pay their taxes.

 

[alexlee]

Forgetting the rhetoric and righteous indignation for a moment, guys and girls. Remember whenever the rules are changed, money changes hands. I for one won't be spending my time complaining about this or that change: I'll be thinking about how it will affect the market and how I should act.

When they put in the 50% CGT discount, that was an opportunity. When they axed NG, there were opportunities. When we had a recession, that was an opportunity. When we had a boom, that was an opportunity.

My focus has always been to play the game as the rules are, not as I wish them to be. When they change the rules, you change with them.
Alex

 

[Ausprop]

fair enough Alex but it is generally more difficult to make money in a stuffed economy than a good one. I can only be thankful that my investments and business interests are not focused on the rust belt states, I think the dichotomy is going to become more apparant as this all unfolds.

 

[GreatPig]

In my current situation, removal of the 50% CGT discount wouldn't bother me, nor would removal of the CGT exemption for a PPoR (I have no plans to sell, ever hopefully). Removal of negative gearing wouldn't either right now, but could soon.

The things that would hurt me the most right now would be:

- Increase in personal tax rates or lowering of the tier thresholds.

- Lowering of the company tax rate (I have a lot of franking credits I'm starting to use).

- Reintroduction of the 30% super surcharge for high income earners.

- Removal of the 30% private health rebate.

- Lowering of the annual super contribution limit at the concessional tax rate, particularly the $100K limit for 50+ yr olds for the next few years.

- Land tax on PPoR (although that's a state tax, so not a worry for this budget).

People who get up and go to work and pay their taxes expect everyone else to do the same.

What about those who did get up and go to work and paid lots of tax and now hope to live off what they managed to build up? Unless you "get up and go to work" you're a bludger?

GP

 

[alexlee]

fair enough Alex but it is generally more difficult to make money in a stuffed economy than a good one. I can only be thankful that my investments and business interests are not focused on the rust belt states, I think the dichotomy is going to become more apparant as this all unfolds.

I agree, but what we want is irrelevant. The economy will do what it does. You and I won't be able to do anything to change that. I'd rather see the reality as it unfolds and adapt to it. I'm also thankful that I built up some assets when the market was good.

I'm not saying it's going to be easy. For example, it's not going to be 'hey, there's a recession and people have to sell: so I'll just go in and buy as much as I can'. I'll also have trouble finding loans, etc. But instead of just sitting around complaining about how the government is stuffing us up, I'll be watching my finances closely, keeping my ear on the ground and buying when I can.
Alex

 

[josko]

In my current situation, removal of the 50% CGT discount wouldn't bother me, nor would removal of the CGT exemption for a PPoR (I have no plans to sell, ever hopefully). Removal of negative gearing wouldn't either right now, but could soon.

The things that would hurt me the most right now would be:

- Increase in personal tax rates or lowering of the tier thresholds.

- Lowering of the company tax rate (I have a lot of franking credits I'm starting to use).

- Reintroduction of the 30% super surcharge for high income earners.

- Removal of the 30% private health rebate.

- Lowering of the annual super contribution limit at the concessional tax rate, particularly the $100K limit for 50+ yr olds for the next few years.

- Land tax on PPoR (although that's a state tax, so not a worry for this budget).


What about those who did get up and go to work and paid lots of tax and now hope to live off what they managed to build up? Unless you "get up and go to work" you're a bludger? Unless you're on welfare!

GP

Yes Great Pig,

All of the above would hurt me too, but I would survive. The removal of Negative Gearing though would mean the end to my portfolio.

Capital Gains will never be an issue until we sell, which will effect Speculators more than Investors.

I like Alex's opportunist attitude, but fail to see where the opportunity in the removal of Neagative Gearing is. As history proved, so did most investors.

I'll be interested to see what Mr Rudd's plans are for more affordable housing. Who will he rob?

JO

 

[alexlee]

I like Alex's opportunist attitude, but fail to see where the opportunity in the removal of Neagative Gearing is. As history proved, so did most investors.

I personally believe if they remove NG yields will jump (rents will increase, and prices will fall) in the short term. The opportunities will more be in NEW purchases that you make AFTER they change the rules. Imagine if you buy a place where the yields are high because they had axed NG, and then they reinstate it.

The greatest opportunities exist when no one else thinks it's an opportunity. It won't be easy: I just hope I have the guts to do it. e.g. if they cut CG, many people will decide not to buy investment property (they might buy direct shares or funds or put it into super instead - assuming they don't change the rules on that). That will increase rents (new supply doesn't come on for lack of buyers) and probably drive down prices (existing IP owners need/want to sell quickly) as well.

However, given that long term it is OOs who influence the market most, it's likely prices will be driven down below the fundamentals in the short term from panic selling. Or If they axed negative gearing...... it would hurt like heck. I'd survive, but it would HURT. But imagine if they did: many people will be forced to sell.

Those are opportunities, assuming, of course, that you have equity / cash available and can borrow money. Most won't. I don't know whether I can, but I'd rather be out there looking, talking to banks etc and at least TRYING to take advantage of the opportunities. The alternative (which will be most people) is to just sit around in fear and complaining about how the govt shafted us. If I can even buy one extra one at a 'cheap' price and hold it, then I'm one property ahead than the people who just sat around complaining.
Alex

 

[WinstonWolfe]

Actually I agree with Alex's skew of increased opportunity for capital to change hands to those more agile and adaptable.

Too often those who have accumulated wealth do not allocate it efficiently, and unforeseen or significant change provides opportunity to redistribute it to those with a better understanding of current supply demand mismatches.

Though the downside is lots of little people get whacked simultaneously.
Suppose it is all part of the selection pressure for people to prioritize learning what is most important, which includes understanding capital and markets.

 

[josko]

Alex,

I now see what you mean.

I know it is unlikely that I will be able to keep most of my properties, but in the event that yields rise, I may be able to hang on to a couple of high yielding properties until Negative Gearing comes back.

It is also possible that yields might rise enough to cover most of the shortfall from no NG. Especially if CGT was abolished. That would also be providing IR were back to 6%.

All speculation of course, I doubt NG will ever be axed, but with a Labor Gvnmt who knows?

Regards Jo

 

[alexlee]

I know it is unlikely that I will be able to keep most of my properties, but in the event that yields rise, I may be able to hang on to a couple of high yielding properties until Negative Gearing comes back.

It is also possible that yields might rise enough to cover most of the shortfall from no NG. Especially if CGT was abolished. That would also be providing IR were back to 6%.

All speculation of course, I doubt NG will ever be axed, but with a Labor Gvnmt who knows?

It doesn't have to be NG. If you ask me, it's more likely they'll change the CG rules. Say, you now have to hold for 3 years instead of 12 months to get the 50% discount, say, or decreasing the discount. But most people do not respond rationally to change. So for example, say the govt says you have to hold a property for 3 years before getting the discount, a lot of people will panic and think it's going to kill property prices. In reality, the market is mainly made up of OOs (CGT exempt) and investors who hold for a long time (given the transaction costs). You can get that the media will also be fanning the flames.

My point being, I'd rather be the one who analyses the changes and responds rationally while everyone else is going crazy.
Alex

 

[allblack]

I would not be to worried. On the same day as article we are discussing the author also wrote.

"The more substantial cuts will be to tax breaks and other incentives, or "tax expenditures", as they are dubbed by the federal Treasury. On this front, Swan and Lindsay Tanner have found $8 billion in cuts over the next four years. It is understood that superannuation and capital gains tax concessions were not on the hit list, which quarantines almost two-thirds of existing tax expenditures from the razor."

My bet is that negative gearing losses for high income earners ($100k plus) will no longer be able to be offset against taxable income.

 

[alexlee]

My bet is that negative gearing losses for high income earners ($100k plus) will no longer be able to be offset against taxable income.

In practice how would this be possible? If your 'taxable salary' is above a certain amount, you can't claim losses from property? For example, I package my interest payments into my salary, so that my actual 'salary' is lower. While tax rebates such as family assistance, etc can be means testing, how will you be able to means test a deduction? Given that most IPs are owned by ordinary people and not high income earners (who have other means of reducing income via structured products, etc) how much savings would this achieve?

Is there any other deduction which is dependent on income?
Alex

 

[aaarghhh]

Pain on Tuesday?

Reminds me of Chuck Darwin - Individuals best adapted to their environments are more likely to survive and reproduce.

If NG and CGT went , it would be tough. I would still survive though.

Aaron.

 

[Nathan]

Good!

I hope they F*ck it up, then they will only last 1 term and we will have a liberal country again. I can go onto laughing at all those who voted labor, and we will all go back to normal when the RIGHT government COMES BACK into play.