“We should all take the Federal Government’s tax review seriously if we want the changes to be fair”.
The Australian Federal Government has released a discussion paper seeking community input into a future policy document which will lead the nation into a better tax system.
Not another tax review, you might respond! The former Rudd government commissioned a tax review in 2008 which was published in 2010 which was to guide our tax system for at least the next 10 – 20 years of the 21st century. This review, also known as the Harper Tax Review, was well received by respected economists but never implemented.
So here we go again. In defence of the government, we are living in a rapidly changing world and reviews of how we might best respond to the changes appear to be inevitable.
For example, in the areas of taxation the digital economy has grown considerably over the past 2-3 years and the importation of goods ordered online evades our GST system. Also the globalisation of the economy has led to situations such as a large multi-national owned and based in USA with the manufacture of products in Bangladesh, promotional materials produced in Sweden and retail sales carried out mainly in Australia. Where do you apply company tax on profits in situations such as these?
Overall, our government obviously does have some set ideas about a future tax system. For example, the discussion paper prepared by Treasury officials admits that adequate taxation is needed to fund important public services. However one of the stated goals of the review is to deliver taxes which are lower. Why is this so when, as the discussion paper acknowledges, our overall tax burden is relatively low compared to other developed countries and we have startling problems in child protection, mental health services, domestic violence and homelessness to overcome.
Also some of the givens in the report can be challenged. For example, the notion that the percentage of people in the workforce will fall by 2050 because of the aging of the population. When will the Treasury people understand that many people who are fit and well will continue to work beyond 65 in the future? For example, Hilary Clinton, if she wins the next US election will not retire until aged 80 (not an easy job US president). There will be many more like her.
There is no doubt that employer groups and sector groups will take this review seriously. They will defend their member’s interest with some vigour.
For example, ACOSS has already put up a couple of proposals.
One is to limit access to partial aged pensions for older Australians who not only own their own home but also have accessible assets. This proposal has been well received by the federal government but ACOSS needs to remember that the more universally a benefit is applied in the community, the broader the community support. Tightly targeted benefit payments attract stigma.
A fairer method could be to restrict the practice of the older Australian to channel their income through their superannuation account where they are taxed at 15% rather than the more progressive tax rates of 37% or 45%.
The second ACOSS proposal is to scrap negative gearing for property investors. They argue that 90% of properties purchased by investors are existing dwellings and therefore negative gearing helps to push up housing prices but not the availability of housing stock, so why encourage investors in this way? The government appears unlikely to respond positively to this proposal and there will be strong opposition from the property development sector.
The charity sector will also be on alert to maintain or increase the support they receive through tax concessions.
For example, tax deductions for donations to charities should be maintained and perhaps other incentives added as we are not high givers to charity compared to countries such as the USA.
FBT exemption has been capped at $30,000 for some years and should be increased if the Government really wants NGOs to survive in areas where they must compete with large for profit enterprise. We should remember that charities carry out work which is not government funded. In the case of Samaritans, this includes emergency relief, disaster recovery, support to people leaving prison, kinship care and student accommodation for homeless young people. We do need to maintain and encourage community driven enterprises such as these.
One concession which is likely to go is the uncapped benefits for charity employees to help with payments for holidays, weddings and family celebrations. How this ever came in beggars belief but charities will argue this helps them with the recruitment of skilled staff.
So overall we all should take this tax review seriously if we want the changes to be fair.
The discussion paper will be followed by an options paper late in 2015 and a white paper setting out clear reform proposals which the government will take to the next election in 2016.
This may well prompt the Opposition to develop its own proposals and we may finally get an improved taxation system which is well overdue.