A summary of Ken Henry’s tax review can be read at Peter Martin’s blog.
The report’s emphasis changed a fair deal along the way, a topic treated of by Martin in another post.
If you’ve been wondering why Kevin Rudd’s focus has recently been on the country a few decades hence, Henry provides the answers. The report frames its recommendations around the theme of an ageing and growing population. When the government responds, we’re likely to see further development of a point of contrast they want to hammer home in an election year; the claim that Rudd Labor has long term plans for Australia’s future while the Opposition plays base politics around the headline of the day. Much will also be made of proposals to raise more revenue from resources, something a nationalist and populist Coalition will have trouble countering, if they’re inclined to do so.
Make of that what you will.
I like the idea of road congestion charges. It’ll mean the States’ll have to fix their public transport systems, though.
Maybe I have the wrong end of the stick, what’s new, but previously when government said they wanted to increase the workforce participation rates of older Australians they were in fact trying to increase the workforce participation rate 5% from 60% to 65%.
Rudd’s speech about Australia in 2050 focused on productivity of the 3 Ps, population size, workforce participation rate and productivity.
Henry’s proposal to reduce the effective marginal tax rates for mothers re-entering the workforce and lower tax rates for older Australians addresses workforce participation rates. I look forward to the time when ageism isn’t as prevalent in the workplace. To do that superannuation reform needs to replace employer based superannuation funds by superfunds that an employee contributes to over the whole of their working life, especially important for the 30% of the workforce in contract and casual employment.
What has happened to the 2007 Labor election promise to use the ATO as a central clearing house for superannuation contributions. Employees regularly have their super contributions stolen by employers who collect the contribution but do not forward the monies to the super fund quarterly as per the law.
Billie#3
Same issue with PAYG remittances – most employers do the right thing, but some are cheats and others have cash flow management issues – most often to lack of sustainable business or Accounts Receivable management. Quite frankly, employers would avoid problems if they committed to remitting super and PAYG by eTransfer (Fee Tax Deductible) at each payday (shown clearly on Payslip) and placing other employer entitlements (as they accrue each payday) in a national Entitlements Fund – a blind trust of sorts.
Where has it been released? I don’t see anything on the Review’s website.
Leaked to Peter Martin, I’d say, Jacques, although it’s a bit unclear from his posts.
Unless they’re just slack, and have sent the report out to journos before posting it on the web?
Billie @ 3 – Is it naive to ask if the ATO clearing house idea is simply that everyone has their individual super fund account for which they can choose their own funds manager eg. Australian Super which travels with them from job to job?
I came late to Super at a time when I was self employed. It didn’t drive me, but the incentive to continue working beyond 65 was certainly enhanced by every dollar I was able to save with tax advantages knowing it was going to make my life much more secure when my ability to earn had gone. Added to which I enjoyed working.
Super aside anything the government can do to encourage continued participation in the workforce helps both individuals and the economy with improved health outcomes for most of us. The availability of a means tested pension is a great safety net for those whose health does break down, but age eligibility for that has long needed to change. It will be interesting to see what the new cut-off of 67 does for life expectancy levels. I bet they improve.
The review itself looks to be first class. By putting tax reform in the context of longer term challenges such as the aging of the population and the fiscal gaps likely to emerge it will give the country an opportunity to address the structural weaknesses in the current tax system before they become critical and hard to combat.
The real challenge will be for the government. Will they have the balls to push through a reform that raises the tax share of GDP over the medium term when they promised not to do so before the last election? The coalition will almost certainly oppose any attempts to raise taxes. So, the government will need to show the courage to stare down the criticisms and explain clearly to the electorate what the consequences of not reforming the system are. They will have to explain that Howard sold them a lie in that expectations of perpetual tax cuts cannot be reconciled with the structural deficits that will emerge in the future and the need for higher rates of public investment in physical and social infrastructure.
Are Rudd, Swan and Gillard up to it?
L.O.@ 9 “Are Rudd, Swan and Gillard up to it?”
Well, they were up to accepting Henry’s advice on tackling the GFC. That took some nerve.
It’s disappointing,but predictable that they haven’t tackled the massive distortions in housing taxation treatment like capital gains tax exemptions and negative gearing. I guess it got put in the too hard basket because of the short term impact. We really needed to do something about over-investmnet in housing in this country because it’s not sustainable in the mid to long term.
Indeed. I hope so, but I doubt it. They couldn’t do it with climate change, and the public is actually behind that one.
Patricia WA – many older workers find that after a working life of permanent employment after age 45 or 50 they can only get casual work that still needs their education and skills but has no continuity. Thus many older workers want access to their super after age 55. I agree that if you can continue in meaningful employment yo will live longer but casual employees and unskilled workers will live shorter lives
Patricia,
I take your point, but I suggest that mailing out $900 cheques to households requires less nerve than increasing the size of Government as a proportion of GDP.
Angharad @ 11: I agree, that is a massive disappointment for me. If we’re talking about planning for the long term, I’m not sure how a situation in which a person on the median wage cannot afford the median-priced house is sustainable.
I am also slightly concerned re: the FBT proposal for charities. There’s the potential that employees of charities and not-for-profits might receive increased wages as a result of the pay equity case about to go before Fair Work Australia, but then lose that additional income as a result of the FBT changes (many charities and NFPs take advantage of salary-sacrific arrangements). In general I’m in favour of a broader tax base with fewer loopholes, so I don’t oppose the FBT change in principle, but it should be offset somehow such that the already low-paid employees of charities and NFPs are not negatively affected. There are better places to look for increased tax revenues than in the pockets of carers, nurses, social workers and the like.
Matt C @ 14 – I was waiting for that. You’re right. I almost added a post script to the effect that the stimulus had lots of PR pluses. Particularly since in hindsight it was so successful.
I think tho’ it’s given Labour and Rudd terrific credibility. As well they’ve been happy to share the credit with the Treasurer and the RBA chief. Henry is given lots of air space and Stevens is often indirectly cited as supporting government policy. Probably useful as a shield too if things go wrong.
If the public debate is properly managed I think there will ultimately be progress on important parts of Henry’s report with consensus managed between business, the finance sector and even the welfare lobby if Rudd and Co continue strong. Problems will mainly come from an obstreporous and strident Opposition as they feel increasingly isolated.
Friends of ours on part pensions are discouraged from working with a clawback system that can leave them with less than 30% of the money they earned. For someone on a a low hourly rate this can mean they get only a few dollars an hour left after tax and clawback – even less if the cost and of getting to and from work is included.
However, what they really complain about is the centrelink system which involves confusing paperwork, endless stuffing around, a clawback that is particularly harsh on people who get short bursts of high income instead of a steady trickle of employment combined with different decisions depending on which person they deal with. (The system confuses the staff as well.) It is even worse for people running micro businesses where expenditure and income are out of step. It is this endless stuffing around that people talk about when they say it is not worth the bother of working.
Perhaps we could get around the centrelink problem by offering people two taxation ion:
1. The no welfare option: A lower tax rates are paid by those who select this option.
2. The welfare option: Nominated welfare is paid in return for higher tax rates. The rates may change depending on what welfare is nominated – For example, someone who wants child allowance only would be on different tax rates to someone who wants this plus single mother allowance.
The difference in tax rates should be set to encourage people on high incomes to select the no welfare option. To be fair there should be a provision to make an end of year adjustment if someone has chosen the option that ends up with them worse off than they would have been with the other choice. There should also be the option of changing the choice during the year if a person’s circumstances change,
In the case of pensions it may make sense to get rid of all the tax concessions on super in return for a universal pension paid to everyone over retirement age. (Make it taxable if giving the full pension to John Howard sticks in the throat.)
Angharad, Matt C and JohnD:
These are relly interesting ideas – especially if the universal pension is at or close to average weekly earnings. The reason I say that is there is misconception out there that most retirees/pensioners own their own home outright, have small mortgages or at least dont pay rent. This is less and less the case, particularly post GFC and reduced super income and employment oportunities/realities as well as the Centrelinkl income and paperwork debacle.
There is a real problem out there that working longer hours (if you can actually get and sustain work) will simply not solve alone.
The rules regarding negative gearing of residential property should be changed to take the heat out of the housing/rental market. Current negative gearing further marginalises those in need of quality, sustainable housing, food sources, and realistic access to care as and when needed.
Negative gearing rules could eg be changed to promote rent-to-buy of rental housing property at quarantined interest rates (for both parties). Why is it necessary to become a pauper in order to have a roof over your head in a country like this?
Hmm, we’ve come the full circle. Income tax is introduced to fund old age pensions; now it is proposed that old age pensions be financed by an employer levy, whilst income taxation is to continue.
I’m imagining right now how much better off we’d all be if Ken Henry had never been born.
“Will they have the balls to push through a reform that raises the tax share of GDP over the medium term when they promised not to do so before the last election?”
.
I very much doubt it, except by stealth (i.e., not changing tax thresholds for increases in wages). They could look at other reforms to pay for an aging population also. For example, they could include the houses people live in as assets before giving them the pension, which would force people to get negative mortgages on their houses. This would stop massively asset rich people getting pensions paid for by others with nothing (who no doubt will stay at nothing if taxes keep on increasing). But that and anything else that might offend any reasonably large groups of voters is never going to happen either.
SATP, since Ken Henry is the one who recommended the stimulus package to Rudd and Wong that saw Australia sail through the GFC with 5.5% unemployment, while the USA crashed and burned at 10.9%, that should give you some idea of how much “better off” we’d be if he wasn’t around…
Indeed Mercurius, it does. Without that stimulus package we wouldn’t now have generation debt facing us.
May I add Rudd & Wong to the list of those without whose birth Australia would be better off?
SATP the family mortgage was there for our generation well before Labor spent a few bucks keeping the economy afloat. Your suggestion about Rudd and Wong is offensive but that is your way, I guess.
Ken Henry of course was appointed and re-appointed to his current position by the Howard -Costello government, and is not saying anything on tax now that he wasn’t saying when he worked for Howard and Costello. It’s all on the public record for those who care to look.
Bluff and bluster aside, what we are getting now is what we got during the previous government, which is what we’ve had since Federation, apart from a short period when Jim Cairns was Treasurer. And that is economic policy, including tax policy, produced, directed, written and choregraphed by the Treasury. They’ve also done the cinematography, make up, costumes and lighting. If the coalition wins the election this year, we’ll get the same. If Labor wins, we’ll get the same.
Trying, as an act of political partisanship, to make the Treasury Secretary the bad guy is just laughable.
Keep making lists, SATP. The grown-ups will get on with the heavy lifting.
SATP @ 22
If we had not had the stimulus package, we would have an even bigger debt due to negative growth in the economy driving down tax revenue and increasing expenditure on unemployment benefits. That’s what we learned during the Depression.
Economies go up and down – they always have. So in the good times one needs to build up surpluses, and in the bad, spend to maintain economic activity.
One could just as easily say the high debt is due to the Libs not storing away enough surplus during the good times.
He’s heard it before, marks. He just repeats the line like a good cocky.
Fascinated, you said:
“there is misconception out there that most retirees/pensioners own their own home outright, have small mortgages or at least dont pay rent.”
well that’s a misperception that I hold as well. So what are the facts? Figure 11 from this report, which is sadly ten years old, says that 2/3 or more of pensioners (so we would presume more retirees) own their own home.
SATP #19 here is Dr Henry’s answer to you…..http://www.treasury.gov.au/documents/1693/PDF/ANU_Conferring_of_Degrees.pdf
‘The overwhelming majority of 65-plus year olds fully own their property (79.9%), followed by those renting (14.9%) and a small percentage are still paying off a mortgage (5.2%), according to the ABS.’ 2006 Census figures, according to BIS Shrapnel.
Mea culpa chaps. I agree that this has been the case but I think that those ownership etc figures are regrettably changing as more people struggle to maintain sustainable incomes. Big mortgage, big repayments, average income cant cope, sell, rent etc. I think workforce casualisation has been a big contributor as well as “Plasma TV” syndrome.
Hey don’t get me wrong Fascinated, I think it’s a terrible plight for those pensioners who are renting, often single, surviving on little more than dog-food. However, as was had in a debate here (or was it on crikey) a year or two ago, a general raise in pension benefits gives money to quite a lot of people who are sitting perfectly comfortably as well. There’s a perception that a pensioner = poor, and that simply isn’t so.
Wilful and Fascinated I should have qualified my comment by noting the figures covered only single-person households, although I can’t think of any reason why they should be significantly different for couples (rather the reverse, if anything). The figures also exclude pensioners living with other family members – many of whom are extremely comfortable – and those in aged care homes, many of whom have to spend basically their entire income to regress to a kind of eternal boarding school for the sick and the demented.
As wilful suggests, ‘pensioners’ covers a very diverse set of circumstances.
I’d be all in favour of a basic income for all Australians paid by the state, with no means test or other conditions. It would have outstanding social justice and economic efficiency benefits. However it’s a novel idea, so neither of the main parties will go anywhere near it.
Another review of the super system and more changes.
Very disappointing because really it is an easy tax grab opportunity for the government.
I am in my fifites and have very little super and never earned a lot over the years.
For the last two years i have been in a well paid position where I am earning 150k a year and as such can take adavantage of the 15 percent tax on contributions to super up to 50k a year. Now it was disappointing enough when it was reduced from a 100k a year but now even more changes are in the wind with higher concessional tax rates being almost certain to come in.
Where is the incentive to invest in Super? What about people like myself who there must be many of who had limited years of compulsory super and who only got a better salary after years on the average wage. I will be lucky with the recent super loses to generate an income much more than the pension the way things are going.
All in all very disheartening. Why doesn’t the government do the same with negative gearing for housing?
We all know why.
Super is like a big pile of loot that the govt just can’t resist getting their hands on.
Mark at the risk of sounding flippant, the incentive to save money for your retirement is so that you will have money in your retirement, not to get a tax break. You can, if you choose, put a large amount into a complying superannuation fund where it will get concessional tax treatment. But you don’t have to if you don’t want to; you can invest it all in shares or property or rare Ming Dynasty vases or whatever takes your fancy. Sure you’ll pay tax like everybody else, but there’ll still be a good chunk left over for your old age.
Sorry about your recent super losses BTW but maybe if you look at the rate of return over a longer period you’ll decide it’s not such a bad deal, especially if you’re in an industry fund. UniSuper’s 5 year compound average to 30 June 2009 for a balanced investment option was +5.3% (5.6% for high growth and 5% for capital stable), which seems reasonable to me. UniSuper wan’t an outlier – The Building Industry Super fund core strategy option for example averaged 5.4% per annum in the 5 years to 30/6/09.
I would expect these figures to go up a bit for the 5 years to 30/6/10, given the share market performance since June last year.
Your situation is exceptionally unusual and I can’t really see a way for superannuation policy to cater for every possible permutation and combination of lifetime earnings. It’s intended to accommodate the vast majority of people engaged as employees earning wages, and to give them a retirement benefit that corresponds roughly with their earnings over a normal 40 years or so working life. Personally I think it’s a pretty good scheme, given where we were as a nation less than 20 years ago.
Ken @ 35 – wouldn’t one solution be to offer the extra tax benefits for everyone regardless of age until their superannuation savings reached a certain level? So it wouldn’t matter if you saved early because you could or late because you just weren’t able to earlier. And if you got unlucky and there was a downturn in the market you would still get the tax break, but if you were lucky and hit a huge upturn in the market then you would hit the threshold earlier?
I too am a bit concerned about the governments continuously changing the rules around superannuation. Eg. is it worth putting extra money into super if in the end it ends up stuck in a system from which you are unable to take it out and ends up being highly taxed?
This was an interesting site to accidently fall upon. So I thought my two bobs worth might give some current reality thoughts.
Currently over 55, can’t get a job, no-one wants me regardless of my skills and experience, so am on Newstart Allowance paying private rent. No super to fall back on. Never had the opportunity to buy my own home, too busy raising child on my own, and working, and paying rent etc etc. Currently paying private rent which is 90% of fortnightly benefit. Doesn’t leave much to live on. Can’t get public housing – lists too long. So I would say I am in the poor bracket of being an Australian. Having paid tax my whole life, to this country, now is when I need a hand up, and can’t even get that. Anyway thanks for reading my whinge!!!!
I’m expected to get work, either casually or full time, but no employer gives over 55′s a fair go. They all want juniors to pay lower rates. I would accept lower rates if someone would offer me a job. Haven’t worked now for six months, and believe me it is sole destroying when you can’t get a break. I am upto 80 applications submitted.
But apart from that, you can be someone’s carer, and get a phenominal amount of fortnightly benefit, but you don’t have to proove you are a true carer, and not a roarter of the system, and to mention friends who are on the old age pension recently got an increase and lost their utilities allowances at the same time, so give with one hand and take with another and in high unemployment towns, no-one does anything to help create jobs.
From what I’ve read, the changes look interesting, BUT can someone please consider this. If you are from Aboriginal/Torres Strait Islander origin, you get government assistance, if you are an immigrant or boat person, you get government assistance, but what about the born Australians who pay tax all their lives and just get knobbled in old age? What does this say about our system?