The Valor Blog.
Investment News and Views, Direct from Our Team.

More Taxes

I have been saying for many years that the decision by John Howard to make Super tax free after 60 was one of the worst long term decisions for Australia. The First Home Buyers Grant was the worst short term decision which only served to make property more unaffordable for first home buyers.

Having a very large portion of the population retired and paying no tax with a smaller working population when the mining boom is over is such an obvious problem, but few recognised this.

It is too late now, but we should have made super tax free on the way in, tax free on the way up and taxed at reduced rates on the way out. This way the Baby Boomers would have had larger balances and their effective after tax income would be roughly similar to the current tax free offering. There would have at least been some tax revenue from them.

Australia is in for tougher times ahead because of this terrible decision. The working population, who are all geared to the eyeballs are going to have to pay higher taxes, reducing their after tax income to pay their mortgage.

What this may do is encourage more speculators/ punters to try lose money on buying over priced property. We really have the wrong incentives in this country to improve people’s living standards.

What this will likely mean is that property will become more out of reach for genuine buyer-owners as they will effectively get a pay cut as taxes rise. I don’t think the current generational lows of first home buyers on strike is nearing a bottom any time soon. I also don’t think the current rush to lose money on an investment property is over.

With a slowing economy, I think the speculators betting on significantly higher property prices are making a fairly dumb bet, but they may look right for a little while longer, and with their irrational bets, the banks may look OK for a little longer too. Neither are likely to be wise investments over the long term.