An incoming Labor government will struggle to legislate its key tax increases with almost the entire Senate crossbench opposed to its plans to abolish cash refunds for excess franking credits, and none prepared to support the limiting of future negative gearing to newly constructed homes.
In addition, a Labor government could also struggle to find support to lift the top marginal tax rate by 2 percentage points and unwind stages two and three of the income tax cuts, which have already been legislated.
A survey of the entire Senate crossbench shows that Labor, if it wins the election, has next to no hope of passing either the negative gearing or franking credit changes before June 30, 2019, the date the term of the existing Senate expires.
Labor has proposed in total tax increases worth $30.6 billion over four years and $280 billion over 10 years. It says it will use this revenue to pay for its promises as well as deliver bigger surpluses and lower debt to buttress the economy against any global downturn.
Labor also will end the arrangement in which shareholders who pay little or no tax receive their franking credits as cash payments if the credits exceed their tax liability. Pensioners will be exempted but no one else.
If it wins the election, Labor would need the support of the Greens and four crossbenchers to legislate to implement these changes before July 1, 2019.
Franking credits hostility
Of the 10 current Senate crossbenchers, nine said they opposed outright the changes to franking credits while one, Tim Storer, said while he had not yet reached a position “I will say that I have received representations from people concerned about Labor’s franking credits proposal given they have made investment decisions based on long-standing policy”.
“It seems the Labor Party of today doesn’t have the same regard for the battlers, the hard-working or the thrifty, but instead reward the lazy and the feckless.”
Negative gearing amendments
On Labor’s proposed negative gearing changes, One Nation senators Pauline Hanson and Peter Georgiou said through a party spokesman they were opposed, as are David Leyonhjelm, Cory Bernardi and Senator Anning.
Senator Storer had no position on negative gearing, while the remaining crossbench senators say they would prefer there be a cap of between two and three on the number of properties that could be negatively geared, rather than restrict the tax deduction to new homes only.
“Grandfather it and limit it to two or three houses,” Senator Hinch said.
Because the election is likely to be held in May next year, Labor would struggle to implement the changes in time for the new financial year, even if it had the requisite Senate support.
The more likely scenario is that if it wins the election, it will rely in the new Senate, which takes its place in July 1, to either legislate the change retrospectively or introduce it on July 1, 2020.
Likely Senate composition
Currently Labor and the Greens have 35 senators and a majority of 39 is needed to pass legislation. Most polls and experts predict Labor and the Greens will not boost their numbers to reach that target, meaning Labor would still be reliant on the Senate crossbench.
Those currently on the crossbench, who are on six-year terms and who will be there after July 1 are Senator Hanson, Senator Bernardi,and the Centre Alliance’s Senators Patrick and Griff. Senator Hinch, whose party won three upper house seats at the recent Victorian state election, could win anther term, while One Nation is expected to win at least one extra spot in Queensland.
As well as posing problems for franking credits and negative gearing changes, all these parties voted for the full three stages of the government’s income tax cuts and will oppose any attempt to revoke them.
Nor are they likely to allow Labor to reinstate the deficit levy and increase the top marginal tax rate to 49 per cent.
Shadow treasurer Chris Bowen said it was hoped that if Labor won the election, the Senate would respect what would be a clear mandate for policies announced years in advance.
“If Australians bestow Labor with a mandate at the next election, we will respectfully discuss its entire tax reform package with the Senate at that time, but that includes its bigger and better income tax cuts as well as the Australian Investment Guarantee,” he said.
“Labor will prosecute its tax reform package with the moral authority of an election mandate.
“Labor respects the Australian people enough to outline tough and difficult tax reform prior to an election and seek support for it.
”Tony Abbott’s 2014 budget debacle is a beacon for major parties to respect the electorate and to seek a mandate for big and bold reform, not peddle lies and ‘she’ll be right’ before an election only to wheel out the exact opposite afterwards.”
When Labor announced changes the negative gearing and capital gains tax deductions before the last election in 2016, they were budgeted to raise $1.9 billion over four years and $37.3 billion over 10 years.
The abolition of cash refunds for franking credits is estimated to raise $11 billion in just its first two years and $55.7 billion over 10 years.
Winding back the income tax cuts will save $122 billion over 10 years and lifting the top marginal tax rate will raise $4.6 billion over four years before it is abolished.
The opposition will prepare fresh costings going into the next election based on the most recent economic updates, including the Mid-Year Fiscal and Economic Outlook, to be released on December 17.