A simple deduction from the Budget
This budget has achieved a few simple things
1. PPOR is the tax shield now
- This budget will encourage more incentive to maximise/upgrade PPOR. There will be more tailwind pressure, as good quality PPORs will be in demand in favour of low/mid-grade IPs. People will be incentivised to trade PPORs amongst each other and renovations on existing PPORs will increase. Furthermore, this will be too hard for any political party to touch in future as this would create wide-spread outrage.
2. Super is even more incentivised
- The tax break from super is too large to ignore any longer. It is such a favourable tax environment and still provides very, very good returns; the clincher, however, is the restrictions to accessing it and the legislative risk that also comes with it
3. Negative gearing/investing in established IPs will decline
- This, I think, is a positive first step, as houses should not have been a way to get filthy rich in the first place. The classic buy infinite IPs in Australia will not apply anymore. Which I think is fair, but it still feels like the ladder was pulled up just as (we FIRE-ers) were about to use this. The game changed after we had already started playing it. Investing in commercial RE may be more attractive now that negative gearing still applies to this class.
4. Investing in shares outside super just became less attractive
- Due to the loss of the 50% discount and the minumum 30% tax on the way out. Still a great wealth engine, but less powerful than previously. Could consider debt recycling into this as negative gearing is still valid for shares?
Keen to hear more discussion! It seemed shocking when I digested the budget. But now, I think the incentives have just changed, and there is still scope for us to CoastFIRE rather than FIRE entirely. Unfortunately, the ever-increasing ageing population needs taxation money, and the working population needs to foot the bill.