Budget must set a new course: a sustainable revenue base to meet community needs

Press Conference: 10.30am Tuesday 16 February, 2016
Where: ACOSS Office, 619 Elizabeth Street, Redfern

Releasing its submission to the Federal Budget today, the Australian Council of Social Service has called on the Federal Government to set a new course to sustain the budget and the essential services the community needs and values. The government must realign its spending priorities and strengthen the tax base.

ACOSS Dr CEO Cassandra Goldie said:
“The Government must not repeat the mistakes of the last two budgets which focused almost exclusively on the spending side and did little to secure the revenue required to fund essential services.

“Governments cannot restore their budgets and fund services with one hand tied behind their back. The shortfall on the revenue side must be acknowledged and tackled. Structural reform of the way services such as health are funded and provided must also be undertaken.

“ACOSS proposes $9.5 billion in savings in 2017-18 from reforms to strengthen the income tax base, and the reallocation of $6 billion, to address unmet need in vital services, including affordable housing and community services and to address major inadequacies in our safety net, including unemployment payments and rent assistance.

“Our proposals build on the common ground about fiscal repair achieved by community, business and unions at the 2015 National Reform Summit. On the revenue side, we tackle tax concessions no longer fit for purpose, and remove tax distortions in the treatment of investment income. We advocate a redesign of superannuation tax concessions to ensure they are consistent with the objectives of the retirement income system, an objective agreed by the Summit.

“The impact of our revenue generating measures will grow in value and steadily erode the budget deficit over time. This is essential to adequately fund services, retain and build confidence and steadily reduce the deficit.

“On the spending side, it’s time to abandon an approach that simply shifts costs to service users, people living in poverty, and State Governments. Instead, we should be focused on ensuring services are delivered cost effectively, for example by relying less on subsidies for private insurance in health.

“We will not resile from advocating budget action to ease the worst income poverty and to address gaps in essential services, like dental health and affordable housing. The single most important investment the Government could make in this Budget to reduce poverty is the long-overdue increase to the unemployment payment, which is currently $37 a day.

Towards a sustainable revenue base

“Genuine tax reform is not about raising or lowering tax rates: it should begin by limiting unfair tax breaks and unintended loopholes that mainly benefit people who are on higher incomes and erode the tax base. These are well known and include superannuation, investor housing tax concessions and the use of company and family trusts, which enable people to avoid paying their fair share of tax.

“Tax avoidance through private trusts and companies has been overlooked in the debate so far. It is too easy for people with higher incomes to shelter their income through trusts or private companies where it’s taxed at a flat rate of 30%. We propose that private trusts be taxed as companies, and that income retained should be taxed at the top tax rate, apart from a ‘reinvestment allowance’ comprising a fixed proportion of the assets of the company. Together these measures would deliver as much as $2.5 billion in revenue in 2016-17 and build over time.

“We welcome the debate over how to reform superannuation tax breaks so that they are fit for purpose: to improve the retirement incomes of the majority rather than a tax shelter for people who are already secure.  The best way to make savings is to tax fund earnings more consistently, including in retirement. These savings along with a tightening of taxation of non-superannuation termination payments and unused leave, would  save around $1.8 billion in 2017-18, which would rise substantially as the population ages, helping to pay for health and aged care services.

“Reform of capital gains tax and negative gearing is also essential: not only to raise revenue but also to stem the speculative investment in property that has raised house prices and lowered more productive investment. A good start here is to limit deductions for investors who borrow to invest in property and shares and to use part of the proceeds to introduce a new tax incentive for new housing construction, especially affordable housing.

“Capital gains tax concessions for small business must also be tackled, including the ‘double discount’ (50% of 50%) for small business assets, and the exemptions for capital gains held for over 15 years or used for ‘retirement purposes.’ Together, these concessions mean that many small business owners can avoid paying Capital Gains Tax altogether, which is inequitable and hard to justify. This reform would save around $1 billion in 2017-18, but also increase in value over time.”

Reforming expenditure programs to improve cost effectiveness and address unmet need

“This Budget must invest in the capacity, health and wellbeing of people who are unemployed by finally delivering the urgently needed increase to the unemployment payment, which was last raised by a meagre $2.95 in 1994. The payment currently provides a single person who is out of paid work with just $37 a day to meet basic living costs, well below the poverty line. A modest boost to the payment would have an immediate effect on reducing poverty.

“To improve the targeting and impact of Commonwealth programs, ACOSS recommends the reallocation of existing expenditure in key program areas to minimise waste and improve effectiveness. This includes redirecting funds for ineffective employment programs, especially Work for the Dole, to more effective and flexible employment assistance; restructuring the family payments system to better target assistance to families in greatest need; and retargeting investment in early childhood education and care from higher to lower income families.

“Health is one of the fastest growing expenditure areas in the Budget due to the ageing of the population and advances in medical technology. Yet, there is much that could be done to restrain these rising costs and redirect wasteful expenditure. One of the major cost pressures is the 30% Private Health Insurance Rebate, which has failed to reduce pressure on public hospitals and should be removed. This would free up around $6.6 billion a year, half of which should be redirected to public hospitals and community based services and to fund lagging preventive and dental health care services.

Building on common ground to achieve structural budget balance

“Through the National Reform Summit, business, community and union groups, including ACOSS, agreed that as an overarching fiscal goal, the budget should be progressively returned to structural balance over 10 years through a staged reform process. Groups also agreed that those on the lowest incomes should be protected in the reform process, which should tackle both revenue and spending.

“We encourage the Government to build on these foundations and use this Budget alongside the tax and federation reform processes, to set the direction for balanced and fair reform,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155

Summary of Key Recommendations
DOWNLOAD Full Budget Submission