29 January 2015
The Australian Council of Social Service today urged the Federal Government to focus on restoring revenue by addressing inefficient tax arrangements, rather than through spending cuts, and chart a fairer path back to surplus in its second Budget.
In its Budget submission released today, the peak community sector body has identified more than $13 billion of potential savings in the next financial year, rising to over $18 billion in 2016-17, through measures which it says restore the integrity of Australia’s progressive tax system.
“This Budget must be a lot fairer than the last one, and the way this can be achieved is by seriously targeting wasteful spending at the top end, including tax expenditures, instead of pursing policies that shift the burden on to people on the lowest incomes,” said ACOSS CEO Dr Cassandra Goldie.
“We cannot balance the budget with one hand behind our back. When two thirds of the structural budget deficit is due to declining revenues, we need a serious effort to restore revenue to adequate levels. Cutting deep into vital social and economic investments and services is the wrong approach and will cost us more in the long run.
“The reality is that Australia’s welfare system is already tightly targeted. We have identified the few areas left in which social services spending can be reined in without causing social and economic harm; such as tightening the assets test to access the part Age Pension and abolishing the Seniors Supplement. These changes will help ensure that government support is going to people who need it.
“Much of the real waste in the national Budget is on the tax expenditure side, in the form of tax concessions which predominantly benefit people on the highest incomes, and this must be a priority in the next Budget.
“A fair Budget must include action to close current loopholes in the personal income tax system, which allow relatively well-off individuals to avoid tax by diverting and ‘sheltering’ their income or income producing assets in structures such as discretionary trusts and private companies. ACOSS estimates that tightening the use of private trusts to avoid personal income tax would save as much as $1 billion in 2016-17 and a further $1 billion would be saved by curbing the use of private companies used for the same purpose.
“We must also take steps in this budget for long overdue reforms of negative gearing, superannuation tax concessions, and Capital Gains Tax concessions, which collectively are costing us billions in foregone revenue.
“The removal of CGT concessions for small businesses would save $1 billion in 2016-17. These concessions encourage over-investment in business assets against other options to improve business profitability and are a high risk retirement savings strategy. Reforms to negative gearing tax concessions would generate a further $1 billion, increasing over time.
“ACOSS is proposing a staged reform approach to provide investor certainty where necessary, with most of the savings to come in subsequent years, making more room in future budgets to fund important community services such as health, education, disability, affordable housing and aged care.
“A fair Budget must value appropriate investment in people and the community services and programs that support them, especially during a time of economic slowdown with rising unemployment and growing levels of poverty.
“This must include an adequate living allowance for people looking for paid work, which the current $37 a day Newstart payment simply does not provide. If there is a single policy that would help to reduce the level of poverty amongst the poorest households in Australia, and improve employment outcomes, it is to restore the adequacy of Australia’s unemployment payment, and the supplement for rental costs (Commonwealth Rent Assistance) which no government has been prepared to do for over two decades.
“This Budget will also need to take steps to address the youth unemployment crisis, with the rate running at over 20% in many parts of the country. We need to see investment in a youth employment plan to fill the vacuum left by the decision to defund Youth Connections. ACOSS has made further recommendations to improve the employment services system and ways to support and enhance the employment opportunities of people currently locked out of the labour market.
“The necessary investments we are proposing in this Budget are modest but fundamental to close the gaps in our safety net. This must include the reversal of last year’s Budget funding cuts to vital services that support people in social and economic disadvantage. The total cost of the investments we propose is around $6 billion in the next financial year, which is affordable given the savings we have identified.
“This Budget cannot repeat the mistakes of the last one, which imposed the heaviest burden on those with the least capacity to carry it, and proved to be socially and economically damaging and divisive. Given the current environment, it would be extremely risky if the government pursued further cuts at this time.
“Australia is a wealthy country with the capacity to ensure all people have access to quality health, education and early childhood services, affordable housing and a strong social protection system. We can manage the challenge of steering our national Budget onto a sustainable path if we make the right choices today.
“Our Budget proposals are about pursuing the common good for people, communities and the country as a whole. They are based on evidence, and sound policy about what will work over the longer term to improve employment outcomes, drive investment in real economic activity, and to ensure that everyone has an adequate standard of living to live with dignity.
“Now is a time for unity not more division. We urge the Government to work with us and the broader community as equal partners in this collective task,” Dr Goldie concluded.
Media Contact: Fernando de Freitas 0419 626 155
Summary of Recommendations
Expenditure savings measures
• Tighten the Age Pension assets test – $1350m ($1450m in 2016-17)
• Abolish the Seniors Supplement – $240m ($250m in 2016-17)
• Abolish the Extended Medicare Safety Net – $400m ($412m in 2016-17)
• Reduce subsidies for out of patent medicines – $1800m ($2000m in 2016-17)
• Remove the private health insurance rebate – $6600m ($6900m in 2016-17)
• Review tax expenditures and reduce/abolish poorly targeted expenditures – $2200m ($2300m in 2016-17)
• Limit deductions for expenses related to passive investments, including housing, to income from the same assets (i.e. reform negative gearing) – $500m ($1000m in 2016-17)
• Remove Capital Gains Tax concessions for small business assets – $1000m in 2016-17
• Curb the use of private trusts and private companies to avoid personal income tax – $2000m in 2016-17
• Stem the avoidance of personal income tax through superannuation ‘churning’- $500m in 2016-17
• Extend 15% tax rate to superannuation fund earnings in pension phase, in stages – $300m in 2016-17.
New spending measures
• Increase Allowances by $51 per week – $400m ($1300m in 2016-17)
• Increase maximum rate of Commonwealth Rent Assistance by 30% – $720m ($760m in 2016-17)
• Strengthen flexible investment for people unemployed long-term and extend and index – $100m ($100m in 2016-17)
• Invest in youth employment transitions program – $65m ($70m in 2016-17) and improve wage subsidy scheme (revenue neutral)
• Index Allowance and Family Payments annually to wages (total $210m in 2015-16 and $230m in 2016-17)
• Increase Family Tax Benefit (FTB) B for sole parents – $480m ($500m in 2016-17)
• Invest in affordable dental care for children and adults – $700m ($1000m in 2016-17)
• Maintain funding for Aboriginal Medical Services – $700m ($718m in 2016-17)
• Index community services funding to wage movements – $360m ($370m in 2016-17) and restore funding cut to community services ($82m in 2015-16 and $100m in 2016-17
• Establish an Affordable Housing Growth Fund – $750m ($900m in 2016-17)
• Maintain and index homelessness funding through NPAH – $160m ($170m in 2016-17)
Total Savings -$ 13,090 million in 2015-16 (-$18,112 million in 2016-17)
Total cost – $5,910 million in 2015-16 ($7,585 million in 2016-17)
NET TOTAL (savings) – -$7,180 million in 2015-16 (-$10,527 million in 2016-17)