Budget preview – Bob Deutsch

Bob Deutsch the Senior Counsel at the Tax Institute talks about what he believes will be in Tuesday’s Budget

Budget preview – Bob Deutsch

Introduction

Ross Greenwood: Let’s start the program this evening going to the federal budget. As I indicated to you earlier, I believe there will be surprises inside the budget that the government is deliberately holding back. This is a new strategy from the federal government, and certainly, from Prime Minister Malcolm Turnbull. If you think about, say for example, citizenship changes, plus also, the 457 visas and even the so called Gonski 2.0 reform to education. Each of these has been landed on the community, and even landed on the Liberal Party without any notice.

There’s been no workshopping, there’s been so surprises out there that suddenly the newspapers speak up. They have just landed them and I think that’s what’s going to be in the budget tomorrow night. Now, if I was a betting person tomorrow night, don’t be surprised if the government doesn’t offer a bit of a tax cut to individuals, but there will a trade-off. My belief is, that perhaps just maybe, the government which has done quite a lot of work on tax refunds, and in particular asking the question, “Why if you’re a PAYE taxpayer, who’s gone to work, paid your tax, all that sort of stuff, why do you have a put a tax for me?”

In fact, what the government might say like Donald Trump has done, no work related tax deductions will be allowed. It would simplify our tax system. It would be a bold reform and the money saved could cut your taxes. How’s that for a little idea? I wonder whether the government is up for that tomorrow night. Anyway, a man who’s more across all of these than me, is the Senior Counselor at the Tax Institute, Robert Deutsch. He joins me now. Many thanks for your time Robert.

Interview

Robert Deutsch: Hi Russ, good to be with you.

Ross: In regards that we know that there are certain things that have been laid. Say for example, issues to try and tackle the black economy, there’s issues in regards to education that we already know about. We know about, say for example, the government funding Badgerys Creek and we would expect even more infrastructure projects to be in the budget tomorrow night. There’s another one that could surprise, maybe the government announces a bit of fast rail in the budget tomorrow. That would be a big breathtaking thing.

These are the types of the things the government maybe has got up its sleeve, depending on the overall state of the economy and how much money is there for the long term.

Robert: Yes, look, I think all those things are on the table, but it’s been hard to read the government on where they’re likely to be moving the budget tomorrow night unlike previous years, there hasn’t been the level of leaks that we’re seeing before. In fact, there are a number of possibilities. One would be in relation to tax rates and work related deductions that you’ve mentioned. That’s a likely area where I think the government will give some attention.

The CGT discount that currently sits 50% for individuals is another area where they may look at a solution to the housing affordability, prices particularly for Sydney and Melbourne.

Ross: Now, that’s a big one, isn’t it, Robert? Because although it has been broadly leaked that they might try and give some tax concession to young first-time buyers trying to save a deposit, that issue that you talk about is absolutely vital for anybody in business or anybody who’s an investor. If that capital gains tax discount, effectively where a person right now makes a capital gain, and halves the capital gain and then applies that to their taxable income, which is broadly how it works now, it reduces their tax exposure.

If they reduce that discount from 50% to say, 25%, that means the people selling assets would pay more capital government tax in the future.

Negative Gearing less attractive

Robert: Absolutely. I think that would be the strategy that they would make the benefits of negatively gearing property investments slightly less attractive without necessarily touching negative gearing. They do it by the somewhat different route of reducing the CGT discount. Now, there have been some noise out of the government that suggest that that’s not on the table, but it hasn’t been quite as a equivocal, or quite as unequivocal I should say, as the noises about not touching negative gearing.

I think that’s an area that you’ll need to pay some attention to tomorrow night.

Ross: We also should point out that the laboor party has got its policy to change negative gearing rules if it were to gain power. But also, it has been quite firm in saying that it would change that capital gains discount rate if it would also take office. In regards to some of the stories out there that the government wants to grab $15 billion out of the black economy, I thought every government since christendom has always said that this is what they’re going to try and create there on the black economy.

It still seems to thrive. It still seems to happen, regardless of what majors governments, large and small, have tried to do over time.

Robert: I think that’s right. There’s been precious little about any detail about how that would be tackled. There’s a report that is now with the government on how it might be tackled, but no detail about what is likely to occur in that space. I think the likelihood of something happening in the black economy area tomorrow night is pretty high.

University Students

Ross: We do know also that there’s going to be significant changes in regards to university students who will pay up to around 7.5% more in fees, and also that there would be a lower income threshold for students starting to pay back their help debt. These, again, are important things. One other aspect I guess that we could mention and should mention, is the whole issue of the doctors, the GPs rebate. That’s been frozen.

Now, that is likely to again be moved, but that’s going to cost the government money.

Robert: It will cost the government money, but that may be compensated with a changed medicare level, or the changed the hiring threshold arrangements relating to medical expenses. There’s lots of ways that the government could tackle that particular issue. A potential rise in the medicare level would be one of them. I think that needs to be watched tomorrow night as well, quite a possibility.

Ross: Do you think that the government will actually get up this idea that it might try and tax so-called foreign investors who leave investment properties empty? The Victorian government is already trying that. So, if the federal government came in across the top, it would be a tax on a tax to a certain extent for some of those foreign investors.

Robert: It would, but I think that problem is real. They’ve even given it a name now. I think it’s called the Ghost House Tax. I think that’s something again that is quite likely, and as you say, in a sense, it’s a tax on a tax if it’s already being taxed at the state level. But I don’t think that’s necessarily going to stop the federal government from taking some action in that direction.

Ross: It’s going to be interesting to watch some of these ideas to see what comes through and what does not. But I love what Robert Deutsch said. Do you love that? He says, “If the tax has got name, which in this case is called the Ghost House Tax, then it’s quite clear they’re going to come through the budget.” It’s probably right actually. As soon as the name is put on a tax, away it goes from there.

Robert, look, I appreciate your time. We’ll be in touch tomorrow, no doubt, during our coverage of the federal budget, the senior counsel at the tax institute. Great with his time here on Money News, and also with these very close to the ground, Robert Deutsch. You have a great budget tomorrow, won’t you?

Robert: Thank you. Look forward to talking to you tomorrow.

Ross: We’ll take a break on Money News. When we come back, we’re going to talk with Dr. Simon Longstaff about the ethics of standing down the Sharks chairman, Damian Keogh, after being found in possession allegedly of cocaine, but we’ll also ask the question as to why it is at this stage, he remains the CEO of Hoyts Entertainment

Negative Gearing Reform – Saul Eslake

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