SPECIAL REPORT: Elections always bring uncertainty for business, but in 2019 the difference between the major parties is among the starkest in decades.
Elections always bring uncertainty for business, but in 2019 the difference between the major parties is among the starkest in decades.
Voters could make one of the most significant choices in a generation when they head to the polls for a federal election in a few months, and businesses and investors could be vulnerable to any poor policy decisions.
It will be particularly critical for Western Australia, with the state’s economic recovery still in its infancy, and property prices falling.
The battlelines will largely be drawn around taxation and emissions reduction, with the Labor opposition proposing a series of tax increases and changes that will cost an estimated $200 billion over the next 10 years.
The most controversial are the abolition of negative gearing for new home purchases, cutting capital gains tax concessions and abolition of refunds on franking credits.
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The coalition is fighting on a platform of lower taxes, with an income tax cut flagged for the April budget, following a $134 billion income tax reduction package legislated in 2018.
A major discussion point is how the proposed tax changes will affect the property market, after house prices in WA fell about 4 per cent in 2018.
In 2016, the Grattan Institute estimated similar changes would reduce house prices by about 2 per cent, while more recent analysis by Cadence Economics for the Master Builders Association predicted it would reduce construction activity by about $858 million over five years.
Another 2016 report, by BIS Shrapnel, estimated limited changes to negative gearing would reduce house prices by about 1.6 per cent.
Any reduction in prices would likely flow through to consumer sentiment and impact on spending and borrowing.
Property Council of Australia WA chief executive Sandra Brewer told Business News the timing was wrong to change policy settings in property because the sector was recovering.
“The last thing we need in the property industry will be uncertainty,” Ms Brewer said.
“That means it’s difficult for people to make decisions about buying their next home or for investors to invest in property.
“When the property market is just recovering in WA and with the eastern seaboard experiencing declines, now’s not the time to be trying untried policy settings.”
She said the changes to capital gains tax would likely have a bigger impact than those to negative gearing.
However, shadow small business minister Madeleine King told Business News analysis showed Labor’s policies would cause only a modest reduction in house prices.
“The most generous tax concessions in the developed world mean wealthier investors get a subsidy from the government while first home buyers get locked out of home ownership,” Ms King said.
Confidence
A survey of 251 retail investors by data firm Listcorp found that 54 per cent felt a Labor victory would be the most likely factor to contribute negatively to share market returns in
2019.
Only 4 per cent picked a coalition victory as most likely to hit returns.
In response, Ms King said instability under the current Liberal government created negative investor sentiment.
Prime Minister Scott Morrison has made concerns about economic risk under Labor the centrepiece of his strategy, arguing last week a change of government would make the economy weaker.
“You can’t tax the economy to success.
“If you tax it harder and higher you will make it weaker.”
The government’s argument is that increasing taxes will slow an economy already at risk from global headwinds, while Labor has countered that their tax changes will encourage spending by middle and low income earners.
The other major battleground will be emissions policy.
In something of an ironic twist, Labor has said it may well implement the National Energy Guarantee framework developed by past energy minister, now Treasurer, Josh Frydenberg.
That policy incorporates an emissions reduction target and a reserve capacity target.
The key difference on this front will be the level of the target, with the coalition retaining the 28 per cent on 2005 levels picked by former prime minister Tony Abbott. Labor hopes to hit a 45 per cent reduction.
The latter will most likely mean the speedy closure of some coal-fired generation in WA, with a recent report by the Australian Energy Market Operator suggesting older units would be shut as early as 2021.
