Social Action Australia (SAA) over the years has analysed a range of important issues.  The issue dealt with in this article relating to superannuation reform is possibly the most important of all due to the potentially very negative ramifications for the Australian taxation system with regard to the future of house sales.  There is a strong possibility, if not an inevitability, that should the Albanese government be re-elected that it will subsequently introduce a capital gains tax on house and asset sales.

The recent announcement by the federal government that from June 2025 the tax rate on income derived from superannuation holdings which exceed three million dollars will be doubled from fifteen to thirty percent is troubling enough.  However, the really disturbing dimension concerning this tax hike is that unrealized capital gains will also be taxed under a regime which is not subject to indexation!!

The concept of taxing unrealized capital gains is rarely implemented elsewhere in the world as it is almost impossible to be applied in a practical fashion. It would require that tax be paid on an asset where there is no realised income to pay it with. Thus, the item being taxed would need to be sold or borrowed against in order to raise sufficient funds for the tax payment to be made. It is possible that this could result in a discrepancy between the assessed value and the realised value of the asset in question which would lead to further complications.

In the case of Self-Managed Super Funds (SMSF) there are instances where property is a part of the fund. Assessing the value of that property for taxation purposes could lead to many inequities and a forced sale (and therefore devaluation of the investment plan of the fund).  Furthermore, because of the absence of indexation the scope will consequently exist in theory for more people to be taxed at a higher rate because of bracket creep over years to come.

The term ‘in theory bears emphasis because there is almost certain to be considerable financial planning being put in place by the time that the legislation comes into effect. Those able to exercise any discretion in the placement of their superannuation funds often invest in alternate plans to the national superannuation scheme. Those able to do this will be the targeted ‘rich’ investors who will have advisors able to place their funds to avoid being disadvantaged by the new legislation. While there may be a short term taxation gain for the government, in the not very much longer term, the taxation raised by the measure will in all probability be of no advantage to the government.

The question consequently emerges as to why the Albanese government is applying such a dud tax hike, which besides possibly destroying SMSFs will not raise the revenue which is promised?   The answer to that question is that the principles associated with the dud superannuation tax hike can be applied to a future capital gains tax on housing and other asset sales.  The precedent which the dud superannuation tax hike will establish will, it is hoped, enable the general acceptance of a tax on unrealized capital gains.

If the Albanese government can ‘get away with’ this dud taxation hike on superannuation (which according to opinion polls is a popular proposal because of the mis-perception that the tax increase will be imposed on a relatively small cohort which will raise a substantial amount of revenue) then the Australian Labor Party (ALP) will be emboldened to later introduce a capital gains tax on house and asset sales in accordance with the  above egregious principle of a tax on unrealized income.

Already the signs are there that such a capital gains tax on house and asset sales will be introduced should the Albanese government be re-elected.   The federal Treasure Dr. Jim Chalmers has unconvincingly denied that a capital gains tax on profits from house sales will be introduced.  The consequent public concern that this concept is in prospect has been countered by the prime minister publicly re-assuring voters that no capital gains tax on real estate of private homes will be introduced so that people are re-assured.

However, Anthony Albanese publicly promised before the 2022 federal election that there would be no changes to superannuation, only to renege on that undertaking by moving to apply this new dud superannuation tax hike.  Furthermore, despite a solemn commitment the ALP would never tax franking credits, the Albanese government is now moving toward introducing such a tax.  It is therefore not beyond the realms of possibility that the ALP will also introduce the removal of negative gearing for property sales either in this parliamentary term or the next one. 

Had Bill Shorten not been honest about his intentions to remove negative gearing and to introduce a tax on franking credits then he probably would not have lost the 2019 federal election.  By contrast the Albanese led ALP has previously brazenly denied that there would be a return to these proposed policies but is now proceeding to examine the introduction of such measures. These broken election promises regarding taxation are not only ethically dubious but constitute serious attacks on private property.

Despite all the difficulties caused by the post-1983 transition from the Deakinite socio-economic paradigm, Australia has still retained a high standard of living.  This has been partly due to the capacity of people to sell their homes (even if they are burdened with a mortgage) at a substantial profit.   The probable introduction of a capital gains tax on house sales should the ALP under Albanese be re-elected will therefore constitute a devastatingly disadvantageous post-1983 ‘economic reform’.

The Worst ‘Economic Reform’: A Capital Gains Tax on Property Sales

Not only would a capital gains tax on house and asset sales be bad enough but the application of such a tax in the context of there being a tax on unrealized capital gains along with the non-indexation of the tax assessment makes this possible new tax regime truly hideous.

Hopefully, the voters in the outer eastern Melbourne federal seat of Aston – who go to the polls in a by-election on April 1^st 2022- will realize that the proposed dud superannuation tax hike is nothing more than a trial balloon to introduce a capital gains tax on family homes  and other asset sales in which unrealized income will be subject to taxation .

The electorate of Aston is not only singled out because there will soon be a by-election but also because the voters in this electoral division tend to be an aspirational demographic in that they are upwardly mobile with regard to their incomes.  Consequently, most Aston voters will not only be hit hard by the dud superannuation tax hike (which has the potential to effectively destroy SMSFs) but also by a capital gains tax being applied in the future to their home and asset sales.

It was the great Florentine political philosopher Niccola Machiavelli (1469 to 1527) who insightfully observed that political problems are similar to treating Tuberculosis; easy to remedy in the early stages but impossible to cure in the later phase. Therefore, unless the electors of Aston are alerted to the acute dangers of the dud superannuation tax hike then the Albanese government will later move to introduce a wealth destroying capital gains tax on home and asset sales should the ALP win the next federal election.

The federal opposition leader Anthony Albanese has attempted to seize the initiative with his response to the Morrison government’s 2020 October budget by focusing on the issue of subsidizing child-care and advocating that this service should become near universal. The reason for this emphasis on childcare is to increase the female participation rate in the workforce. This policy paradigm is reflective of the Australian Council of Trade Unions’ (ACTU) five-point National Economic Reconstruction Plan, the first pillar of which is an Early Childhood Education and Care Strategy.

However, this emphasis on increased female participation in the workforce does not consider the issue of ‘choice’ regarding those parents who wish to stay at home to raise their children. Unfortunately, there seems to have been a paradigm shift in public policy regarding family assistance in which there is now an orthodoxy that both parents wish to be in the workforce. If both parents want to enter the workforce then the subsidization of child-care is a legitimate policy option.

But there are instances where one of the two parents wish to stay at home to look after their children. This choice should be respected by the federal government providing much greater financial support to stay at home parents. Such a policy paradigm can be facilitated by providing tax rebates to high income families based on the number of children that they have so that it becomes financially feasible for one of the parents to stay at home. For families who are less well off the rate of payment under the Family Tax Benefit A should be substantially increased to a level commensurate with the Australian Labor Party’s (ALP) proposed child care subsidy level so that one of the parents will have the option of staying at home if they so choose.

Why the Liberal Party Needs to Go Back to the Future

Alas, there is probably little chance that the current federal coalition will return to the Liberal Party’s past tradition of supporting the family unit by providing financial relief to those parents who wish to stay at home to raise their children. This is because since the 1980s there has been an ideological shift within the Liberal Party which seeks to drive down wages on a collective basis which constitutes a repudiation of the Deakin/Menzies tradition. By increasing the participation rate in the workforce an oversupply of labour is facilitated so that wages can be driven down by creating an employers’ labour market.

The main victims of this labour oversupply are employees who do not have specialized skills.  For example, cleaners, no matter how dedicated and effective that they are in doing their job will lack the leverage to be adequately paid or to obtain the requisite number of hours to be fairly remunerated when there is an over-supply of labour.

In the grave contemporary environment in which Australia finds itself in due to the covid 19 pandemic there is a need for the federal government to shrewdly apply public policy regarding welfare payments to assist in facilitating the availability of employment. So far, the Morrison government is to be commended for its initiatives of ‘Job Keeper’ and ‘Job Seeker,’ which to date have staved off a socio-economic collapse.

Further 2020 budget initiatives such as wage subsidies and tax cuts indicate that the Morrison government is innovatively responding to the covid 19 pandemic. Nevertheless, there still needs to be a radical return to past Liberal Party traditions such as greater financial support for stay at home parents. It should not be forgotten that one of the eminent founders of the Liberal Party in 1944 was Dame Elizabeth Couchman.  She took the Australian Women’s National League (the AWNL, which was founded in 1904) into the Liberal Party to become that organisation’s women’s division.

An argument could be made that without the AWNL’s entry into the Liberal Party that this new party could not have won the December 1949 federal election let alone have been a viable political party.  The impact of the AWNL’s tradition of emancipatory feminism was that policies such as child endowment were adopted, meaning that families received financial support so that both parents did not have to go out into the workforce.

Give One of the Parents the Right to Stay at Home

It is true that due to social change that the role of women in society has radically changed for the better so that there has been a transition toward equality of the sexes. Consequently, the previous expectation that women should be the primary care givers in a family context is now no longer universally accepted.  This should not mean that if a spouse/partner wants to stay at home to be the primary care giver for her / his children that he /she should not have the of choice of doing so.

For this choice to be exercised by either the woman or the husband/male partner, there needs to be much greater level of government financial assistance for families. In the current challenging covid 19 socio-economic environment it is imperative that financial support be provided to families so that one of the parents will have the option of staying at home if they so choose. The positive dividends of substantially increased financial support for families will be profound. By ensuring that there are less people competing for jobs, younger people will have a greater chance of gaining employment, particularly in the retail and hospitality sectors which are key components of the overall service sector.

Due to the impact of the post-1983 economic rationalist reforms Australia has transitioned to a context where the service sector is (or was) the main generator of employment. Therefore, Australia is particularly vulnerable to the economic shocks which have been induced by the covid 19 pandemic. The federal government’s unveiling of a manufacturing policy reflects this massive vulnerability regarding the services sector.

The services sector cannot be pump-primed to generate employment levels which existed prior to the pre-covid 19 pandemic levels. However, younger people will still have a greater chance of gaining job entry into the service sector if a substantial component of the potential workforce is provided with financial support to stay at home. The provision of family tax rebates for high income earners and much increased family tax benefits for those who are on a lower income will not only help open up employment to younger job seekers but will also provide the economic confidence which will be needed if the federal government’s various stimulus measures are ultimately to be successful.

The current uncertainty concerning the continuity of Tony Abbott’s prime ministership has raised the distinct and welcome possibility of Malcolm Turnbull succeeding him to that high office. Should there be a Turnbull prime ministerial succession then hopefully the leadership uncertainty which has bedevilled Australia since the Howard government’s demise in 2007 will end.

By Suryan Chandrasegaran, B.Ec., LLB., M.Tax

This FTA was announced in late 2014 to great fanfare.

The question arises: Is this FTA a good thing for Australia?