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Political Policy

The “short-termism” of political policy

John Hewison
Founder and Director
11 Apr 2016

As a nation, we should be alarmed and embarrassed by our political “short-termism”. We have become the butt of revolving door Prime Minister and leadership party jokes internationally and the continual rhetoric and posturing of political opinion on budgetary matters is reducing our confidence in both the system, and our future.

What is most infuriating in my opinion is the propensity of governments to encourage their voters to take certain actions under policy framework to achieve their desired ends. But as soon as the financial landscape changes, and the heat is on, politicians think they can just simply change the rules at the expense of their voters.

Take for example the upcoming federal budget. Unfortunately, it would seem that any viable solution in the best interests of the country is completely absent from the politicalised bombast.

We are instead being forced to endure this never-ending squabble between all factions of government based on electorally attractive expedience, political ideology and downright irresponsibility of unaffordable expenditure promises. Add to that the recent history of a raft of unbelievable waste in government expenditure, which has exacerbated the situation and placed us in debt.

Understandably, the money has to come from somewhere – the government has no money of its own, only what we pay them in the form of taxation revenue. But it’s when the grabbing becomes opportunistic, and goes against the original purpose of a policy that voters become understandably angry, and confused.

Superannuation

For the last two decades, Australians have been encouraged to place large amounts of money into super on the grounds that the federal government saw it as a control over the expenditure of savings and as a consequence of that, reduction of reliance on social security. The motivation was to shift the responsibility for retirement savings of an aging population away from the public sector to the private sector and the individual.

This has not just aimed at the rich, it includes people who have sold businesses, those who have inherited money and those who have simply worked hard and saved responsibly throughout their working lives.

Now, it appears these people are in the sights of politicians to raise additional taxes.

Negative gearing and capital gains

Negative gearing was introduced to encourage people to invest in property in order to provide those who could not afford to buy property with rental accommodation. Tax deductible negative earnings on investment property includes depreciation allowances, which more complex than simply assuming the interest on loans is higher than the rent received.

Currently, Australia has a serious shortage of affordable rental stock and government cannot afford to provide public housing. The onus has been shifted to the private sector through the introduction of tax incentives.

Also, investors are currently able to claim a 50 per cent discount on capital gains earned on the sale of certain investments like property and shares. Prior to the introduction of this, there was a CPI based adjustment on the cost price of investment to compensate the investor for effects of inflation. This was complicated and expensive to administer and there was almost no incentive as it is perfectly reasonable that investors should receive an adjustment for CPI to calculate capital gain in “real” terms.

Should either party wind back these incentives, or continue to meddle with the purpose of superannuation, investors may pull out of the markets and look elsewhere like increasing the value of family residences, buying collectables like art, investing overseas, or simply spending their wealth on lifestyle activities such as travel. I question whether the government would be able to cope with the aftermath. We could well be driven further into the abyss of debt and recession.

I don’t know about you but I am sick and tired of the scare mongering and rumoured taxation try-ons based on political sensitivity. What we need is leadership and confidence.

Australia needs a strong and responsible government to tell them the facts and produce reasonable policies of balanced reductions in expenditure and soundly based and fair revenue raising. In other words responsible budgeting. We might not like it but we need it.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.