The Australian Council of Social Service is urging participants of this weeks’ National Tax Forum to avoid divisive and fruitless arguments over whether we should tax consumption or income, and to focus instead on practical solutions to the challenges of population ageing, housing affordability, poverty, and workforce participation.
“The Forum is an important step to build the case for reform and bring the community into the discussion. There is broad agreement among business, unions, community organisations and experts that the tax system should be reformed to tackle the costs of an ageing population, high housing prices, low productivity, and the challenges of workforce participation and poverty. The Henry Report offered practical solutions to these problems and that should be the starting point for discussion.
“Whilst participants are free to raise all issues related to tax reform, there is little point in a stoush over raising the GST or flattening the tax scales. Those who argue the GST is the ‘elephant in the room we can’t ignore’ should be careful it doesn’t stampede debate on practical, viable options for reform. If the tax debate becomes an argument of ‘fairness against efficiency’ we will all lose the debate.
“Increasing the GST would indiscriminately cut the living standards of pensioners, unemployed people and low paid workers. Australia already has close to a flat tax system when both income and consumption taxes are taken into account. Relying on the GST to pay for the services needed by an ageing population would undermine the fairness of the tax system. A fairer way to pay for future health and aged care services is to remove income tax loopholes for people on higher incomes such as aged based tax breaks and the churning of wages through superannuation accounts.
“Inefficient state taxes such as Stamp Duties could be reduced as the Henry Report proposes, by strengthening the taxes the States already have including Land tax and Payroll taxes.
“We need to tackle the biases in the tax system that favour speculative investment in housing and other assets which inflate home prices and adding to the squeeze on household budgets. The low rate of tax on capital gains and the ability of taxpayers to deduct their investment losses against their wages were rightly targeted by the Henry Report and it’s time to act on this front.
“The community wants a fairer personal income tax system based on ability to pay rather than sharp avoidance practices. ACOSS is pleased the Treasurer has signalled the need to close business loopholes and we will insist the Government adopt the Henry proposals for removing shelters like breaks on ‘golden handshakes’ and the use of private trusts, companies and super funds to shelter personal income. We estimate that commonly used personal tax shelters cost at least $20 billion foregone every year – crucial revenue that could be used to lower overall tax rates and improve services.
“Tax breaks for superannuation should benefit all, not only those in the top two tax brackets.
“The community also wants a simpler social safety net system that prevents poverty through decent minimum payments and help for people to transition to paid work.
“Henry makes clear practical proposals in all of these areas and this is the opportunity for us to progress tax and transfer reform in line with community demands, whilst at the same time mapping out the clear path of longer-term reforms we must take,’ Dr Goldie said.
Media Contact: Fernando de Freitas 0419 626 155
Key priorities for reform based on AFTS Report proposals
1. Personal income tax fairness and simplicity
• Remove poorly targeted tax offsets (e.g. ‘golden handshakes’, medical expenses)
• Tighten tax treatment of private trusts, companies and personal service businesses
• Introduce a standard deduction and tighten substantiation for large work related expenses claims
• Use the savings to reduce personal income tax rates and/or improve services
2. Efficient investment and affordable housing
• Tax capital gains, interest and rents at a 40% discount from personal tax rates
• The 40% discount to apply also to deductions for investment expenses and losses
• Broaden Land Tax, reduce it for investment in low cost housing, and reduce Stamp Duties
• Introduce a new means test for pensions based on ‘deemed income’ from investments
• Earmark part of the revenue from these measures to investment, and incentives to invest, in affordable housing and urban development
3. Fair and sustainable support for retirement incomes and services
• Tax employer super contributions at marginal rates before they are transferred to fund and replace existing tax breaks with a simpler and more equitable capped annual rebate
• Prevent erosion of public revenue as the population ages by removing anomalies in the taxation of people of mature age, and earmark the savings for expenditures on health and aged care services. This could include applying a consistent tax rate to super fund earnings in the contributions and benefits phases, limiting tax concessions for contributions to net increases in retirement savings, and abolition of the Senior Australians Tax Offset.
4. Poverty reduction and workforce participation
• Single allowance recipients to receive the increases paid to pensioners in 2009 (currently approximately $50 per week) to narrow the gap between payments
• Introduce consistent indexation of working age payments to wage movements to prevent the gap from widening
• Integrate Child Care Rebate and Fringe Benefits Tax concessions for child care into a strengthened Child Care Benefit
• More flexible transition arrangements for social security recipients entering employment including ease the ‘allowance’ income test for people required to seek part time employment and strengthening the working credit to encourage casual employment
• Over time, remove the pension/allowance divide between different working‐age payments and replace with a core payment based on essential living costs and supplements for additional costs including rent, disability, caring and raising children alone. This to be done so that no group is financially worse off and the poorest households are better off.
ACOSS Submission Paper: A fairer, more efficient tax and social security system
Opinion piece by ACOSS CEO Dr Cassandra Goldie in the AFR titled: ‘Tax system needs a dose of equality’