Tax breaks in the "Age of Personal Responsibility"

Treasurer Hockey has called an end to the "Age of Entitlement", see here. Describing the SPC decision as a signal to the rest of the country that past practice no longer applied, Hockey said it was up to businesses to take all necessary steps to get their own houses in order before the last resort of seeking a government bail-out.

''The age of entitlement is over. The age of personal responsibility has begun.''

'I say to you, emphatically, everyone in Australia must do the heavy lifting now'.

No-one's quite sure how this will all pan out. SPC is the current target politically, however there are big dollars up for grabs if policy changes are made to the tax treatment of superannuation and other concessions such as the 50% discount on capital gains tax and the CGT exemption of the family home.

Chris Richardson, economist with Deloitte Access Economics has estimated together these tax breaks amount to $66 billion in the coming year. The Abbott government has indicated that there will be a review of taxation in a white paper later in 2014.

Richardson states he considers the superannuation concessions to be necessary but not equitable and need to be revisited, in accordance with the recommendations of the 2012 Henry Review.  We have previously covered the range of changes proposed during 2013 to superannuation earlier in this blog. The main argument made by proponents for change in this area is one of equity. The poor pay more in a flat tax treatment and the rich benefit more.  The contrary argument is that when the rich make more money, this benefits everyone by their paying more tax overall; effectively growing the pie as well as encouraging people to save.

The combination of the capital gains discount, the ability to negatively gear rental properties, state stamp duties and land taxes also came under scrutiny in the Henry review. The then Rudd government ruled out any tinkering with negative gearing or the 50 per cent capital gains tax discount. But the review had recommended a broad-based land tax to replace “inefficient” property taxes.

Both the Institute of Chartered Accountants in Australia (ICAA) and CPA have made recommendations recently in these areas, such as restricting lump sum withdrawals from superannuation and encouraging income streams as a viable alternative.  Both associations have indicated the desirability of a systemic approach rather than piecemeal reform.

We consider the government should:

• apply GST to all spending except wages;
• broaden the land tax base;
• abolish stamp duty and payroll tax;
• increase the progressive personal income tax thresholds;
• raise pensions and income support for those who need them; and
• leave superannuation alone.  It has been modified and tinkered with too many times and another change would further erode confidence in the system.

These policies are unlikely to be implemented across the board. However, they would achieve, and reach sooner, the outcome of a balanced budget instead of passing on ever increasing deficits to the next generation.  And this would be the real "Age of Personal Responsibility".