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Federal Budget Insights

Labor's proposed changes

Professor Robert (Bob) Deutsch

Senior Tax Counsel 

Transcript, 14 March 2019: Comments on the upcoming Federal Budget 2019-20 

BOB DEUTSCH:  At The Tax Institute we have engaged in a process in recent weeks and months where we've surveyed our members and importantly, the survey has been around the question of Labor's proposed changes to the tax system. 

There are many facets to that, most notably the restrictions on negative gearing that Labor is proposing on all but newly constructed property; the denial of refund of excess imputation credits; the halving of the capital gains tax discount; taxing discretionary trust distributions at a minimum rate of 30%; and perhaps most importantly, the measure to limit tax deductions for the cost of managing one's tax affairs to $3,000. 

They're the sort of - the bad news, if you like, from what Labor is proposing. There's lots of arguments about those particular measures. 

There is one other measure that I will mention regarding the so-called Australian government investment guarantee which is proposed to be an immediate write-off of 20% of the expense incurred on purchase of any business asset in excess of $20,000. That's quite generous. 

The reality is that our members are very firmly opposed to all the initial measures, and quite well disposed, obviously, to the Australian guarantee. 

In relation to the first half-dozen measures that I've mentioned, the general consensus is about 80%. In other words, 80% either disagree or strongly disagree with the measure. 

Personally, I take a more precise approach, and I think there are some aspects to what Labor is proposing that are quite reasonable and quite fair. In particular, the halving of the CGT discount. That's something that I've argued for some time is overly generous and does need to be looked at. I think what Labor is proposing is perfectly reasonable. I know that many members of The Tax Institute don't agree with that particular measure, but nonetheless, I think we owe it to the Australian public to be honest about what is acceptable and what clearly is arguable. 

The negative gearing restrictions are more complicated, and I think whatever happens with that, there are going to be lots of issues. One of them will be around the question of what happens to any excess amount, whether you can carry that forward for offset against future income from the same investment class, or whether you will have to put it in as part of the cost base for capital gains tax purposes. That's quite a technical question, but it's an important one that needs to be analysed. I've spoken to the Labor Party, and they've indicated to me, verbally at least, that they will be looking at that issue over the months that follow. 

That's it in a nutshell. 

There's lots more to say about it, but for the purposes of today, I think that's probably enough to at least give you a sense of what The Tax Institute is looking at. 

The Tax Institute will be looking at this issue, or these issues, in a lot more detail and advocating the position adopted by members and beyond that, during the next few months. 

Thank you.