Three things you need to know post the 2019 Federal Election

Find out what this means for you

The surprise Federal election victory by the Liberal-National Coalition has important implications for Australia’s investment markets – it will cause many investors to re-examine their portfolios and investment strategies.

We have summarised below the three major implications the election results will have for your portfolios.

The election result means that the following key features of the tax system are likely to remain untouched for the foreseeable future:

  •  Franking credit refunds –  The strong backlash against the Labor party’s proposed restrictions on franking credit refunds from the Australian Tax Office means this feature of the tax system will remain an important investment opportunity for income-seeking investors. It is unlikely e Governments will risk making changes in this area unless it’s part of a broader tax reform proposal.
  • Negative gearing – Labor proposed to restrict negative gearing to newly built residential properties – and not existing properties or other investment assets such as shares. With this proposal gone, this source of lingering uncertainty for property and investment markets no longer exists.
  •  Capital Gains Tax concessions – Labor proposed to halve the capital gains discount from 50% to 25% for assets purchased after 1 January 2020 (and held for longer than 12 months). With this proposal eliminated, another important source of risk for long-term investors is removed.      

Investment implications

Investment portfolios that have Australian share exposure are well placed to benefit from the preservation of franking credit refunds.

The retention of negative gearing and capital gains discount provisions should continue to favour geared investing strategies.

We are already seeing an increased share trading activity on the Australian Stock Market with some shares in the Health Insurance sector rising as high as 15% in value.

Economic observations

The Morrison Government plans to implement tax cuts which, if enacted before 30 June, would provide low/middle-income earners with a payment of up to $1080 once they file their 2018-19 tax returns. There is every possibility that this should help to bolster consumer spending over the second half of this year. 

More businesses (those with turnover of up to $50 million) will benefit from immediate tax write-offs for capital purchases of up to $25,000.

If inflation and wage growth likely to stay low, and the unemployment rate under upward pressure, the Reserve Bank will likely cut the official cash rateover the next six months or so, with a rate cut as early as June still possible.

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