It's pretty hard to drink my early-morning cuppa and shake my head at the same time, but that's what I feel like doing as I go over the latest Labor government "initiatives". First there is their latest housing policy, titled "The First Home Guarantee", which makes the government the lender of last resort as it allows first-home-buyers to borrow the full purchase price of a house up to $1.5 million on as little as a 5% deposit.
Imagine plonking down as little as $75,000 to become the proud owner of a $1.5-million mansion! You're just 5% away from "negative equity" - which is as horrible a euphemism as "negative growth" - should the already overheated real estate market go through the long overdue correction, and you suddenly find yourself owing more on your house than it is worth! That's how the American Fannie Mae and Freddie Mac went belly-up in 2007, and wasn't that a gigantic financial bloodbath!
Yes, we have a housing crisis in Australia, which is due to supply and demand being out of balance: there are simply too few houses and too many eager buyers! Since the Labor Party, Australia's Supreme Leader of Mortgage Debt, can't built more houses with the stroke of a pen, they are doing the opposite and adding fuel to the fired-up market by bringing forward approprimately six years of demand for housing by reducing the deposit requirement to 5% and scrapping the need for mortgage insurance. What will that do to already unaffordable house prices? Make them go up and make houses even more unaffordable!
Of course, someone has to pay for all this, and so Labor is looking for low-hanging fruit, and there are none more low-hanging than superannuation where your money is locked up until retirement. Remember when Peter Costello, as Treasurer, announced a one-off additional non-concessional contribution allowance of $1 million during the 2007 tax year? This was actively encouraged by the Government from the sale of the family home or a business and would by now have resulted in a balance of $3.8m with average compound growth of 7% in superfund returns over the past twenty years. In addition, he allowed bring-forward arrangements for three years of non-concessional contributions of $150,000, so it became possible to contribute $1.45 million in 2007, resulting in a superfund balance of $5.3 million today.
These are the "wealthy" people that Labor now wants to hit with an additional 30% tax on - wait for it! - UNREALISED capital gains on balances over $3 million, which means that if your investment suddenly spikes in value, you pay tax on that increase in value, even if you have not sold the investment. What if the investment drops in value in the following year? Tough luck; you've paid your tax; there's no refund!
Those who sacrificed the family home in 2007 to do this in order to retire would now have $3 - $5 million in their account at the average rate of increase in funds over the period. This is not an excessive amount and they should not be penalised and labelled as "wealthy". At the very least, they deserve some compensation instead of being required to pay a punitive tax on UNREALISED capital gains. After all, they only followed a Government incentive to minimise their tax burden. Remember Kerry Packer's famous quote? "I pay whatever tax I am required to pay under the law, not a penny more, not a penny less ... if anybody in this country doesn't minimise their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."
And why the $3 million threshold? Why not $5 million? Or even more? It's because Labor doesn't really expect to collect much from this new tax anyway. After all, anyone who was smart enough to follow the then government's advice in 2007 is smart enough to avoid this new tax by taking their money out of super again, which is exactly what Labor wants us to do because it wants those billions of dollars back in the mainstream where it can be taxed at the full rate --- which may only be marginally more than under the new super tax because at least outside super you'll only be taxed on capital gains AFTER you have realised them, and you can also apply the 50% tax concession on capital gains.
Bad luck if in all these years you fathfully followed the L-A-W. Labor has screwed you again! As the saying goes, "Life's a bitch and then you die".
Even my bird-brain parrot is shaking its head in disbelief at this folly.
