Prime Minister Malcolm Turnbull and Opposition Leader Bill Shorten during the People’s Forum debate at the Windsor RSL. Photo: Andrew MearesParty leaders are criss-crossing the country. No baby is safe from political puckering, no shopping centre free from the risk of a made-for-television walk-through from those who would be prime minister.
Nanjing Night Net

Springtime might bring on the shearing, as the old Australian folk song would tell us, but election time brings on the something altogether unique – the dark art of election promises.

It’s true that the less likely you are to win power, the more fanciful your promises can be. After all, if you never have to implement it, you can promise to paint the Sydney Harbour Bridge pink and pave Carlton’s Lygon Street without fear of breaking them.

Of course, the only reason you’d make fanciful promises is the slim-but-springing-eternal hope that they might, just might, do the trick and get you elected. Which then becomes an election you’re almost sorry you won, as you have to then either pony up for the pink paint or tell the Australian people that, well, sorry, I didn’t mean it.

In the latter corner sits almost every prime minister of the past two decades. No cuts to the ABC? Um, yeah, about that… L-A-W Law tax cuts? Well, not so much. Non-core promises? No carbon tax under the government I lead? “Never ever” a GST?

It’s enough to make you wonder why we listen before an election at all. The pollies we deserve?

I have some sympathy for our politicians, though. It’s how the game is played, in Canberra, in the media and in our homes. “Boring but honest and responsible” is a great way to govern, but a terrible way to try to win government, I’m afraid. Self interest and a lack of attention from voters is a bad start. And when you’re the only party playing by the rules, you’d be at an enormous disadvantage.

So, bring on the promises and the pork barrelling – it’s election time.

Maybe the only promises we should believe are those that’ll actually cost us something. After all, no pollie is going to risk losing votes before an election, then fail to follow through on the policy. Who wins the cutting war?

The superannuation system is a good starting point. The Coalition has announced changes that limit the size of the tax-free portion of our super.

That’s smart and responsible – a system that was supposed to take the place of pensions was never meant to be the equivalent of a Cayman Islands tax haven.

Then we have the bizarre situation of Labor – for purely political purposes – wanting to water down the changes.

When PM Turnbull is trying to take money away from millionaires, and former AWU boss Shorten is giving it back, you know we’re in an election.

Super is overly generous, and changes need to be made. A points victory to the Coalition. Gearing up

The parties go back to their respective ideological corners for the next round – negative gearing. At issue are the dual (related) concerns of housing affordability and the fairness of tax concessions on interest.

Labor is flagging cuts, while the Libs have decided it will cause the sky to fall down. The Baby Boomers want negative gearing left alone, while Gen Y/Millennials want it gone. Kids blaming their parents for being out of touch? Plus ça change.

Housing affordability is a real issue that needs to be addressed.

But if we allow companies to deduct their interest costs, why not property investors? This round is a draw.

Then there’s Labor’s plan to halve the capital gains tax discount on assets held longer than twelve months. Self-interest rears its head here, too, but the policy question is simple: what social or economic good is created by the current 50 per cent discount, and would it be materially undone by reducing it to 25 per cent.

There are good reasons for investing for the long term – but those reasons are self-generating (ie great returns), and not reliant on the tax system for those benefits.

Without a clear reason to keep it, Labor wins this round. Restoring balance

Not returning the budget to surplus as quickly as previously promised is a change from both parties. With nothing to split them, this round is a draw somewhat by definition. If history was a guide, we might think that a Coalition government would restore the budget balance more quickly, but history owes more to circumstances than policy. A draw it is.

Cutting medical funding feels like a terrible move – but targeting GPs and testing (think radiology and pathology) is Coalition policy. Labor opposes it. For many years, federal governments of both stripes have been reining in subsidies to pharmacies and their wholesalers, delivering much-needed savings.

Freezing increases in the Medicare rebate for doctors and cutting incentives for scans and testing is a smart move that can always be reversed if they result in unfavourable patient outcomes.

A victory for the Coalition. Foolish takeaway

What does all of this have to do with investing? Nothing and everything.

If you plan to negatively gear an investment property, or you own shares in a pathology business, you’ll be keenly interested in the specific outcomes. But more broadly, to assist continued economic prosperity, the budget needs to be balanced – over time – by getting the combination of spending and tax into better shape, as well as making sure policy decisions boost economic activity, not just economic wealth.

There’ll be plenty more promises to come before election day, but the true long-term investor knows that self-interest (as well as sensible public policy) is making sure the economy has the right long-term settings, to maximise growth – which in turn leads to economic and investor success.

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Scott Phillips is a Motley Fool  investment advisor. You can follow Scott on Twitter @TMFScottP. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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