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Recent Media

This section provides a selection of media items posted in the last seven days on issues within TaxWatch’s area of interest. Items of longer-term interest will then be transferred to the monthly archives and may also be filed under he relevant topic in the Tax Policy collection.


Bill to hike Medicare levy to raise $8 billion NDIS funding set to face Parliament

Caitlyn Gribbin, ABC News, 17 August 2017

A bill to increase the Medicare levy and raise $8 billion to fund the National Disability Insurance Scheme (NDIS) will be introduced to Parliament today. The levy is a charge paid by most taxpayers to fund Australia's public health system and the Government wants to increase it from 2 per cent to 2.5 per cent. The Coalition will introduce the bill to the House of Representatives today, but it will need to convince the Senate to pass it. The rise is due to come in from July 2019, and the money raised would go toward fully funding the NDIS, which is facing a multi-million-dollar funding black hole. But Labor will only support the increase for Australians earning more than $87,000 a year, arguing high-income earners must pay a greater contribution. The Coalition is continuing negotiations with the Greens and Senate crossbenchers. Senator Derryn Hinch is on board with the changes, while the Nick Xenophon Team and One Nation said they were still in discussions with the Government. The levy increase would equate to an extra $375 a year for those earning $75,000. Treasurer Scott Morrison has previously said the Government would not engage in horse-trading to get the bill through Parliament. The Opposition has continued to insist the Coalition should instead abandon its planned corporate tax cuts, and extend a temporary deficit levy on high-income earners, which is due to expire this year. Top

Senators negotiate Medicare levy hike

Cameron Stewart, The Australian, 17 August 2017

Negotiations with the Greens and key Senate crossbenchers have given the federal government confidence it can hike the Medicare levy to fund the national disability insurance scheme. But the Greens say they're yet to have any party room discussion on the issue. As well, independent Jacqui Lambie says she's still talking with Treasurer Scott Morrison about the income level at which a rise from 2 per cent to 2.5 will kick in. "I want the NDIS and I have no problem with the 0.5 per cent, it's at where do we start," she told ABC radio on Thursday. Senator Lambie doesn't like the government's position of having those earning $28,000 a year paying an extra $75. But she believes Labor's compromise of having the levy rise begin for those earning more than $87,000 a year is too high. "I think we can find some middle ground here," she said. Greens MP Adam Bandt said reports Mr Morrison was confident a deal was imminent was news to the minor party. "The Medicare levy and any proposed deal haven't been the subject of discussion in our party room," he told reporters in Canberra. Ahead of introducing the legislation in parliament on Thursday, Mr Morrison called for bipartisanship to help Australians with disabilities and their families. But he stressed having different cut-in rates for the increased levy risked the integrity of the tax system. "When you try and make the Medicare levy a progressive tax, you create real complexities," he told reporters in Canberra. "People will lose an incentive to earn more in that situation because if they're on $87,002 then they're paying an extra levy for their entire income," he said. Top

Treasurer Scott Morrison confident of shock Medicare levy deal with Senate

James Massola, The Sydney Morning Herald, 16 August 2017

The Turnbull government is optimistic it can strike a shock deal with the Senate crossbench and pass the $7.8 billion Medicare levy, one of the centrepiece measures of the 2017 budget. In a move that defies predictions the 0.5 per cent levy rise would stall in the Senate - and possibly be put on ice until after the next federal election - Treasurer Scott Morrison will on Thursday bring the bill to the Parliament. The 0.5 per cent levy rise is supposed to start from July 1, 2019 and is designed to help fill the 10-year, $55.7 billion funding shortfall for the National Disability Insurance Scheme. Mr Morrison has led behind the scenes negotiations with the Greens and members of the Senate crossbench in recent weeks and senior government sources said those meetings had been very "constructive" and the prospect of a deal was a "live option". The introduction of the legislation is a clear sign of the federal government's confidence it can secure the votes it needs in the Senate. Despite the five current absences from the Senate because of the citizenship crisis, illness and retirement, the government must secure the four votes from Pauline Hanson's One Nation, three votes from the Xenophon Team and three of the five other crossbenchers. Alternatively, a deal with the Greens and one more senator would suffice, because of pairing arrangements. Government sources said they were confident "we have a couple of different paths to victory here". Mr Morrison told Fairfax Media on Wednesday evening the NDIS had enjoyed bipartisan support from its inception because all parties recognised "the need for this vital service and the importance of caring for those who need it the most". "The only thing we have not agreed on is funding the program," he said. "Now is the time to finish what has been started, and fully fund the NDIS once and for all. The Turnbull government chose the Medicare levy, asking most Australians to contribute according to their means - because this is the responsibility of all of us." "A few years ago, Bill Shorten asked Australians to do the very same thing, and contribute to the NDIS by a 0.5 per cent increase in the Medicare levy. He voted 'yes' then, and now he wants to vote 'no' to suit his political agenda, pitting Australians against Australians." Mr Morrison said Labor should "do the right thing" and back the legislation, but this is unlikely to happen as Labor has said it will only support the rise for taxpayers in the top two tax brackets - that is, people earning more than $87,000 a year - and argued it is unfair to raise taxes on singles earning as little as $21,655 and families earning $36,541. Labor adopted this position despite a split in the shadow cabinet, revealed by Fairfax Media in May. The Greens raised similar concerns to Labor back in May, as did senator Nick Xenophon, while Senator Hanson said she was not convinced the extra money raised would fund the NDIS. The government believes, however, it will be able to put these concerns to bed. According to figures from the Treasurer's office, based on data from the Australian Tax Office, it is not necessarily the case that any single person earning more than $22,000 will be hit by the Medicare levy rise. According to the data, about 9 million adult Australians don't pay the Medicare levy. A single parent earning less than $49,871, a pensioner on less than $42,806 or families with three kids on less than $57,399 pay a reduced rate of Medicare levy, or even no levy at all, because of various exemptions and protections. Top

Australian wages stall at record low of 1.9 per cent

Eryk Bagshaw, The Sydney Morning Herald, 16 August 2017

The wages of working Australians are going nowhere, new figures show, stalling at a record low while the earnings of more than 10 million private sector employees fall below the cost of living. The figures, published by the Australian Bureau of Statistics on Wednesday, show wages grew by just 0.5 per cent in the June quarter, or 1.9 per cent over the year, placing mounting pressure on household budgets. The result also means the Turnbull government is now barely keeping up with its budget forecast of a 2 per cent wage rise, a figure it is banking on to return to surplus by 2020-21. It has fallen well short the 2.5 per cent rise it forecast for the year to June in the 2016 budget. The private sector's 0.4 per cent growth for the three months to March is the weakest result since the global financial crisis, with only healthcare and education workers recording a rise much above inflation. Overall, wage growth for private employees slowed to just 1.8 per cent, below the cost of living of 1.9 per cent for the year to June, while the wages of public sector workers grew by 2.5 per cent. The Bureau's chief economist Bruce Hockman said the low wage growth was partly a result of continuing underemployment. "Underemployment is an indicator of spare capacity in the labour market and a key contributor to ongoing low wages growth," he said. Treasurer Scott Morrison has repeatedly said Australians would "see better days ahead" on the back of record jobs growth, echoing the sentiments of Reserve Bank Governor Philip Lowe. "With the strongest jobs growth since before the financial crisis of 240,000 jobs it is important that we continue to make the right choices to see these results flow into wages," he said. Labor's employment spokesman Brendan O'Connor said Mr Morrison had scored the trifecta of flat wage growth, the proliferation of insecure work, and a falling share of GDP accruing to employees. Mr Morrison said wages wouldn't improve by increasing taxes on business. "Your wage is not going to go up by Bill Shorten taxing someone else's wage more," he said. "Labor's plan to increase the tax burden is driven by pursuing the politics of envy not the economics of opportunity." Goldman Sachs economist Andrew Boak said he believed the peak disinflationary period for wages had passed on the back of the 3.3 per cent increase in the minimum wage, a 33-year high in corporate profits and the longest continued expansion in jobs growth since 2011. But the best-performing states of NSW and Victoria continued to record disappointing wage growth, bucking the widely held theory that near-full employment would lift wages. "The weakness in annual wage growth wis once again broad-based across the states and sectors" said Capital Economics chief economist Paul Dales. "In other words, hardly anyone is escaping the low wage problem," he said. Top

Rich will benefit from company tax cuts, says leading tax experts

Joanna Mather, The Australian Financial Review, 16 August 2017

One of the nation's most respected tax academics says the 'elephant in the room' is that the rich will benefit from corporate tax relief because they use so-called bucket companies to warehouse wealth. Richard Vann, the Challis Professor of Law at the University of Sydney, said the government was relentlessly eager to talk up the need to attract foreign capital with a lower company tax rate. But the "elephant in the room" was that rich locals had a lot to gain too. "If we're going to have the debate let's have a frank debate," Professor Vann told a conference hosted by The Tax Institute in Sydney on Wednesday. "It's the high net wealth individuals who will benefit and this is because they will get a lower tax rate on their bucket companies." Professor Vann said he was not arguing the rich did not deserve to benefit; it was only that the issue should be "out from under the table". "Let's talk about how we tax the high wealth individuals because they are as big a part of the story as foreign capital," he said. The Turnbull government is due to reintroduce shortly legislation that will reduce the company tax rate for businesses of all sizes to 25 per cent. It has already managed to pass laws gradually applying the lower rate to companies with turnover of up to $50 million. Prime Minister Malcolm Turnbull argues that at 30 per cent, Australia's company tax rate is out of step with the rest of the world. And lowering it will encourage investment, from which will flow jobs and growth. But the left and right sides of politics routinely clash over whether it will be workers or foreign investors who benefit most from lower rates. Labor Leader Bill Shorten prompted a row with the Business Council of Australia in August when he characterised the government's $50 billion Enterprise Tax Plan as a handout that would "accelerate national debt" and "impede growth". This was because if companies paid less tax, the government would have less money to service the debt it had accumulated to pay for the cuts in the first place. The BCA's Jennifer Westacott called Mr Shorten a fibber before former Labor prime minister Paul Keating had a go at Ms Westacott, claiming her "limited and jaundiced view" ignored how benefits would flow solely to foreign investors. Professor Vann said Treasury modelling used to justify the case for a corporate rate cut overstated the economic drag, or marginal excess burden, of company tax compared with personal income tax and the GST. This was because there were many assumptions build into the modelling. If those were "relaxed", the burden associated with company tax dropped to be more in line with the other types of taxes. But politicians never talked about the limitations of the modelling, Professor Vann said. Nor did they acknowledge that very wealthy Australians would continue to stash family money in bucket companies held within trusts and taxed at whatever the company rate is. There is, however, some question over this because Revenue Minister Kelly O'Dwyer is set to introduce a legislative amendment that would deny companies holding passive investments access to the lower company tax rate. Academics can't agree on whether cutting company tax will make life better for Australians. Independent Economics' Chris Murphy, who worked with Treasury to model the Enterprise Tax plan, has argued there are big economic gains for a relatively small budgetary cost. But Janine Dixon from Victoria University has said post-tax wages, and therefore living standards, will fall. Top

Don't create policy, tax uncertainty: CSL's CEO Paul Perreault call to the Turnbull government

Nassim Khadem, The Sydney Morning Herald, 16 August 2017

Policy changes on 457s and tax incentives can create uncertainty for business, CSL chief executive Paul Perreault says, and has urged the Turnbull government not to keep tinkering with tax settings. Mr Perreault was speaking to Fairfax Media after the Melbourne-based biotech giant, which specialises in leading blood products and vaccines used in treatments for diseases, on Wednesday lifted its full-year net profit by 7.6 per cent to $US1.34 billion ($A1.7 billion), boosted by strong sales of its products. CSL's sales revenue for the year lifted 12 per cent to $US6.6 billion, and the company declared an unfranked final dividend of US72 cents a share, up four cents on last year. The $58 billion company expects FY18 net profit in constant currency terms will be higher, in the range of $US1.48 billion to $US1.55 billion, which market analyst Citi said was "softer than the market expects". CSL's share price dropped 1.5 per cent to $125.27 on Wednesday. The company said it will not be buying back any shares this year for the first time since 2008. At its half-year result announcement on February 15, the company had forecast full-year underlying net profit would likely rise 18 to 20 per cent, up from previous guidance of 11 per cent growth. Revisions 'in step' Mr Perreault said he was pleased that the Turnbull government consulted with the company on its 457 visa changes. The company, which is now expanding projects across the world, including a largely untapped market in China, had met with Turnbull government ministers to express its concern about the exclusion of skilled categories such as biochemist, microbiologist and production manager from 457 visa eligibility. With major facilities in Australia, Germany, Switzerland, United Kingdom and the US, CSL employs more than 20,000 people around the world, and relies on being able to move highly skilled workers between its plants globally. It about 40 foreign workers on 457 visas in its Parkville research laboratories and Broadmeadows production plant, which is modelled on a plant in Bern, Switzerland. "These are very specialised technical positions that we were talking about," Mr Perreault said. The Turnbull government's revisions to its policy following the consultations with CSL would "encourage development of local employees" and allow greater mobility of workers. "Thankfully the revisions that Australia put back were in step with rest of the world," he said. Don't tinker with tax But there was still uncertainty on tax settings. The government's Research and Development (R&D) Tax Incentive program provides about $3 billion in tax offsets to businesses each year. There were attempted moves to cut the R&D tax break under former prime minister Tony Abbott but they were blocked in the Senate. "We have always said we do R&D where it is most viable to do R&D," Mr Perreault said. "It's great if you get tax credits and we wouldn't want the government to get rid of tax credits because it affects the rest of the biotech industry. A lot of the smaller companies rely on the growth and jobs that generates out of Australia, and without it they would really struggle." Mr Perreault said he was not sure, but there "could be further cuts" but called on the government to "not continue to tinker with these things back and forth because it gives uncertainty to the companies that rely heavily on them". As to whether Donald Trump's plans to cut the US corporate tax rate to 15 per cent would impact CSL's decision to stay in Australia - some companies have warned they may move offshore if Australia's rate stays at 30 per cent - he said tax settings may be a consideration on whether to set up future projects in Australia, but it would not see them abandon their current projects. "We are expanding in Germany, In Switzerland and in Australia, regardless of the tax breaks we have today," he said. Milestones hit Mr Perreault said the company had "delivered on our promise to provide innovative medicines to patients with rare and serious diseases in more than 60 countries". CSL Behring's, the company Mr Perreault previously ran, had hit "two milestones which were particularly significant", including the June FDA approval of Haegarda, which treats Hereditary Angioedema (HAE), and is a therapy for patients with the rare and potentially life-threatening genetic condition. Haegarda provides 95 per cent reduction in oedema attacks, reduces the need for rescue medication. It also saw strong growth in its Idelvion range, which is used for patients with Haemophilia B. The company also continued to expand its plasma collection network, with nearly 180 centres in the US and Europe. "We intend to open 25-30 centres over the next year, a level of expansion which is unmatched in the industry," Mr Perreault said. During the first half of FY18, CSL intends to approach the US private placement market to raise about US$600 million as part of the company's overall capital management program. Entry into China CSL still has not made a return on the $US275 million acquisition of the Novartis influenza business, which is now called Seqirus. But Mr Perreault said it had secured multiple new product licences. Seqirus is the second largest flu vaccine maker in the world. It has a seasonal flu vaccine, sales of which had remained steady, Mr Perreault said. Sales had not increased under a bad flu season, but it could in coming years as more people take flu vaccines. CSL also took a majority stake in Chinese fractionator Ruide, which develops and manufactures plasma-derived products. Mr Perreault said this was the company's "entry point into a one of the largest and fastest growing immunoglobulin markets in the world". "We now have the capabilities to expand our efforts in delivering life-saving therapies to Chinese patients with rare and serious diseases," he said. Top

ACTU says black economy report ignores scale and severity of wage theft

Gareth Hutchens, The Guardian, 15 August 2017

The Australian Council of Trade Unions has criticised a parliamentary report on the black economy, saying it fails to understand how serious wage theft is in Australia. It has called for an overhaul of the industrial relations framework, saying the government needs to make it easier for workers to recover stolen wages from their bosses. It says the so-called “black economy” – which includes businesses and individuals operating outside the tax and regulatory system, that deal with cash and often avoid taxes – is contributing to gross inequality in Australia and works in favour of employers. t has rejected the parliamentary report’s assertion that a key cause of Australia’s black economy is an overly burdensome high tax and regulatory regime, saying the assertion is not supported by any evidence “and is clearly ideologically driven”. “The mechanisms offered to exploited workers to fight back through the current Australian industrial relations system are too complicated and are financially out of reach for most working people,” the ACTU president, Ged Kearney, said. “To claw back stolen wages and superannuation, and fight exploitation, workers must spend hundreds of dollars as a starting figure and endure lengthy court proceedings. “This is a barrier for workers and it creates a perverse incentive to underpay workers and deny them access to their entitlements, safe in the knowledge that the likelihood of being caught and punished is much lower than the potential rewards. “The use and abuse of the shadow economy as a business model is a clear example of how the rules at work are broken.” The black economy taskforce released its interim report in March, which found the most important determinants of the size of Australia’s black economy were “high tax and regulatory burdens, and low profit margins, which place pressure on supply chain practices”. It said social norms were the next important factor, with other factors including gaps in the “regulatory perimeter”, the availability of cash (and other non-traceable payment methods) and the risk of detection and penalties. But the ACTU has dismissed the assertion that high tax and regulatory burdens are to blame for Australia’s cash economy. It says the real driver is the fact that the system is too hard for workers and their representatives to enforce laws and recover stolen wages. It says the Fair Work Act requires a lengthy and expensive process just to enforce employees’ rights via legalistic court proceedings. “This creates a perverse incentive to underpay workers and denies them access to their entitlements, safe in the knowledge that the likelihood of being caught and punished is much lower than the potential rewards,” the ACTU submission says. The ACTU submission to the black economy taskforce will be released on Tuesday. It says businesses should be heavily penalised for stealing from employees; businesses must be forced to pay payroll tax; sham contracting must be stopped; and multinational companies who pay no tax and underpay workers should never get government procurement contracts. “The ACTU is concerned that the interim report of the ‘black economy taskforce’ simply does not address exploitation and wage theft in detail,” the submission says. “A total of five lines were devoted to exploitation of workers in the interim black economy report and the taskforce to date has been found to be wanting in its understanding of the importance of this issue. “It needs to be much easier for workers and their representatives to enforce laws and recover stolen wages. The Fair Work Act currently requires a lengthy and expensive process just to enforce your rights via court proceedings.” In 2012 the Australian Bureau of Statistics estimated the black economy was around 1.5% of gross domestic product in Australia (roughly $25bn a year today), up from 1.3 % in 2001. Top

Negative gearing, more supply and foreign tax lead affordability solution

Matthew Cranston, The Australian Financial Review, 15 August 2017

Limiting negative gearing to investment in new housing, increasing land supply and taxing overseas buyers are the top three priorities for fixing Australia's affordability crisis according to a poll of 13,000 people. The survey commissioned by the think tank The Australian Institute for Progress shows that if the first, second and third responses to what the best measures for increased housing affordability were, taxing foreign buyers would rank the highest. Director Graham Young said the results reflected how difficult policy making was in housing. "The thing that stands out is how difficult it is to make good policy in this area because it has become so politicised," Mr Young said. "It seems that the real problem – saving up a deposit – is the one that voters are least likely to think about. "Taxing or limiting overseas purchasers is again something which doesn't necessarily help people who need a roof over their head as it limits the investment market." The extensive survey conducted from May 30 through to June 12, shows that taxing purchases by foreign buyers ranked surprisingly high as a measure to improve affordability, but it was changes to negative gearing that most people said would be key to unlocking the affordability problem. Of all respondents 24 per cent said setting the limit on negative gearing to investment in new housing only would be the best measure to improve affordability. "The industry has lost the argument on negative gearing with it ranking ahead of measures to increase supply," Mr Young said. While all the key property industry advocate groups such as The Property Council of Australia have been pushing back against the negative gearing policy of a federal Labor government, the survey shows it is clearly a popular measure to improving affordability. Even the head of Australia's largest listed property developer Stockland's Mark Steinert has said before that, "some type of sensible and fair cap on negative gearing isn't unreasonable". However only 16 per cent of those surveyed said they would change their vote if the policy on negative gearing was changed. And of those that described themselves as Labor and Green voters 46 per cent and 45 per cent respectively said negative gearing changes were their top priority. About 20 per cent of respondents said increasing the supply of vacant land and new houses would help. Other key findings from the survey include just how pessimistic people are about the housing market. Only 21 per cent thought it was a good time to buy a dwelling to live in, while 20 per cent said it was a good time to buy a house as an investment. Top

Labor tries to force hundreds of Australian companies to publish secret tax data

Gareth Hutchens, The Guardian, 14 August 2017

Six hundred of Australia’s biggest private companies could finally be forced to publish their high-level tax information, under a new push by Labor to repair a notorious piece of legislation. Labor will introduce a private senators’ bill on Monday to amend the Taxation Administration Act 1953, to require private companies with more than $100m in turnover to release their tax information to the public annually. The former Labor government passed similar legislation in 2013 but the provision was dumped by the Coalition in 2015 before the changes could take effect. The Coalition then passed legislation introducing a higher $200m threshold, in a controversial last-minute deal with the Greens in December 2015. It allowed 600 of Australia’s biggest private companies to continue to be shielded from public disclosure, because they fell between Labor’s original $100m threshold and the Coalition’s new $200m threshold. At the time, the Coalition justified its legislative change by claiming some MPs had raised concernsthat the publication of private companies’ financial details could expose wealthy business owners to security risks, including kidnapping. Last month the shadow treasurer, Chris Bowen, signalled Labor would try to reintroduce its 2013 legislation in this term of parliament. He also said that, if the Senate did not support the legislation, Labor would take its plan to the election. The shadow assistant treasurer, Andrew Leigh, said the private senators’ bill would restore the level of transparency that was legislated by Labor in government, before it was wound back by the Coalition. It would also align the threshold for private corporate entities with that of public corporate entities, by lowering the threshold from $200m to $100m. “It stands alongside other Labor transparency measures, including disclosure of tax haven activity in government tenders, public reporting of country-by-country reports and protection for whistleblowers who uncover tax dodging by multinationals,” Leigh said. “With rising inequality and mounting government debt, Labor stands on the side of middle Australia and small business, not millionaires and multinationals. “Last week we saw the Senate crossbench back in Labor’s access to justice policy to help small business get a fair deal against the big guys. This week, we are fighting for tax transparency to promote fairness and tackle inequality.” Labor’s renewed focus on the $100m reporting threshold will also revive interest in a secret list of private companies that has enjoyed a tax reporting exemption since 1995, under a deal done by the Keating government during a legislative overhaul. Guardian Australia revealed in late 2015 the names of 1,498 private companies associated with Australia’s business elite, including the prime minister, Malcolm Turnbull, that were not required to publish financial reports under the historical secrecy provision. If companies on the historical exemptions list have an annual turnover of $100m or more they will no longer be able to avoid publishing financial reports under Labor’s planned tax reporting threshold, according to Bowen’s office. Top

Labor's tax policies would cost Australian economy at least $167 billion

Kylar Loussikian, The Daily Telegraph, 14 August 2017

FAMILIES and small businesses would feel the brunt of a $167 billion tax hit from a Bill Shorten Labor government, according to new modelling. Treasurer Scott Morrison seized on the figures as proof of Labor’s plan for an “unprecedented tax grab” — labelling it “the politics of envy” which would fail to lift wages. The Parliamentary Budget Office and Treasury conducted independent modelling of Labor’s tax plans, including its opposition to business tax cuts, move to scrap negative gearing and plans to increase capital gains taxes and change family trusts. Taxpayers would also be hit by a $22 billion increase to the top marginal tax rate through the extension of a budget repair levy, which expired this year, and $20 billion from Labor’s opposition­ to superannuation changes. The figures come as the Turnbull government is preparing this week to put its business tax cuts back on the agenda after a damaging internal row over same-sex marriage. Mr Morrison’s plan would cut the tax rate of all companies to 25 per cent over a decade but Labor opposes this. The modelling shows Labor’s plan would cost businesses $65 billion, assum­ing the Liberal government passes its entire tax cut and that Mr Shorten would roll it back entirely. “Labor is dumping more than $150 billion worth of taxes on the shoulders of Australian families with a six-shooting tax blast that will bring our economy to a standstill and put further pressure on household budgets,” Mr Morrison said. “Everyone is in the sights of Labor’s unprecedented tax grab — families, singles, retirees and small business owners. This is the grim reality of a Labor government led by Bill Shorten: tax upon tax upon tax to pay for Labor’s insatiable appetite to spend other people’s money. “Higher taxes don’t increase your wage … that is a flat earth argument that will penalise Australian families and whack small businesses.” Labor has unveiled its tax policies over more than a year, with Mr Shorten announcing changes to restrict negative gearing to new houses early last year. Mr Shorten last month said a Labor government would change family trusts to put a 30 per cent floor on tax, which will prevent users of trusts escape paying tax by splitting them between family members. Labor said it would affect only 2 per cent of taxpayers, or about 315,000 trusts. The 10-year modelling shows a $32 billion tax hit from restrictions on negative gearing, $13 billion from capital gains tax increases, and $15 billion from family trust changes. But Labor also wants to exempt workers earning less than $87,000 a year from the hike in the Medicare levy, while those on higher wages would have their levy increased by more than the government’s plan. Mr Shorten has repeatedly attacked the government over its tax plans, likening it to giving cash hand-outs to multi-millionaires. “It’s a different menu, another set of rules for those who can afford to upgrade to the pointy end of the tax system­,” he said last month. “Australians with lavish property portfolios, using complex deductions and ... stashing money in offshore tax havens, using every tax loophole that money can buy and leaving working and middle-class Australians to pick up the tab.” Top

Tax experts blast super changes

Pia Akerman, The Australian, 8 August 2017

Tax lawyers, accountants and fin­ancial planners have attacked the government’s changes to superannuation regulations, declaring it a “shemozzle” with widespread confusion about details affecting thousands of people. Under changes that came into effect on July 1, a $1.6 million transfer cap has been imposed on the total amount of superannuation that can be put into a tax-free retirement phase account. Any excess funds now need to be put into an accumulation phase fund — where earnings are taxed at 15 per cent — or withdrawn from the super system. Despite being a key part of the government’s superannuation reforms, details about the balance transfer cap’s application were still being finalised in June, with industry experts voicing frustration about the uncertainty. The Tax Institute, representing tax professionals, has warned that further sticking points are likely to emerge as a result of the rush to implement the reforms, which were first announced in last year’s federal budget. “Since May 2016, this has been a real debacle,” institute superannuation committee chairman Daniel Butler said. “The industry is just up in arms about it. It’s proving to be an absolute disaster in practice.” The government was forced to backflip on its initial plan for a $500,000 “lifetime cap” on non-concessional contributions following uproar from backbench MPs, parts of the super industry and many conservative voters, instead reducing existing annual non-concessional contributions cap from $180,000 a year to $100,000 a year. Industry bodies told The Australian that although Treasury and the Australian Taxation Office had worked diligently to confer about how the changes would apply, too much reform was implemented too fast. While the balance transfer cap is the main issue, there is also some confusion around eligibility for one-off capital gains tax relief available for self-managed super funds to partially offset capital gains arising from complying with the $1.6m cap. Financial Planning Association policy head Ben Marshan described the reforms as “a bit of a shemozzle” with elements of the transfer balance cap still being legislated in the month before it was due to take effect. “Consumers need to take a good look at their superannuation and make sure it’s in order to make sure they’re not breaching any of these new laws,” he said. Brisbane psychologist Maureen Burke had to set up a new superannuation accumulation fund because she hit the $1.6m cap after selling her family home and putting the proceeds into super. Dr Burke, who had planned to retire at the time of the global fin­ancial crisis but kept working part-time to maintain financial security, said she was angry at the cost of seeking financial advice and maintaining another superannuation account. “Superannuation was to help Australians work towards a self-funded retirement,” she said. “Now they are pulling the rug from under us and accusing us of being tax dodgers. It has eroded any trust and certainty in the system.” A spokesman for Revenue and Financial Services Minister Kelly O’Dwyer said industry bodies had been regularly consulted since late last year and SMSFs had received some administrative concessions while they adapted to more onerous reporting requirements. Self-managed Independent Superannuation Funds Association director Duncan Fairw­eather said Ms O’Dwyer had rejected the association’s earlier request for an amnesty period to the end of 2017. Top

Company tax cuts aren't the only growth tool in the box

Janine Dixon and Jason Nassios, The Australian Financial Review, 6 August 2017

With the company tax cut debate back on the agenda, the battle lines are drawn and the usual suspects have taken up their positions for and against. Critics have been quick to point out perceived hypocrisy, particularly in relation to prominent Labor figures. Meanwhile, at Victoria University's Centre of Policy Studies we have been running detailed, dynamic computable general equilibrium model simulations of the impact of a cut to company tax in Australia. The modelling paints a complex tale but we think we have the answers to the main questions. Will a company tax stimulate or impede growth?

It depends what you mean by "growth". A cut to company tax will stimulate investment and wages, as the coalition government and the BCA have been keen to point out. These effects will be modest, derived from investments that are profitable at a 25 per cent tax rate but not at a 30 per cent tax rate. New investments will need workers. To attract these workers away from their existing jobs, wages will grow. Wage growth is great for workers, obviously, but it will also quickly curtail any sought-after investment boom. An investment that looks profitable at 25 per cent tax under today's wages will not necessarily be profitable as wages go up. Our estimation is that the potential new investment opportunities that open up under the lower tax rate are quite limited, facilitating a small positive stimulus to economic growth. But here's the catch. Even though economic growth is stimulated, domestic incomes are reduced, because foreign investors will contribute less to the nation's income through taxation. Immediately when taxes are cut, as a nation we will lose a chunk of tax revenue from foreign investors. Over time some but not all of this loss to the nation will be offset by higher wages. So when Bill Shorten says a tax cut "impedes growth", while his meaning is somewhat ambiguous, he is not wrong. The BCA were quick to deride the statement as "patently untrue", appealing to the argument that the tax cut would "grow the economy". Shorten, however, must have been referring to growth in domestic income, which will indeed be impeded by a company tax cut. Domestic income is the more suitable measure of material welfare, and the measure with which governments ought to be concerned.

What about national debt?

Does it matter? Shorten is also correct that the tax cut will accelerate national debt. We anticipate that 10 years after a company tax cut from 30 per cent to 25 per cent, the nation's foreign debt would be at least 2 per cent higher as a percentage of GDP than it would have been had the company tax rate remained at 30 per cent. This is not necessarily a problem, but what it means is that Australians will be able to consume slightly less of their annual output than they otherwise would have. Again, the gap between "economic growth" and "income growth" is apparent.

Does the tax cut pay for itself?

The stimulus to economic activity will not be enough to enable this policy to self-fund. In other words, the tax base won't grow enough to enable the recovery of the government revenue lost under the tax cut. Domestic taxpayers will cover the revenue loss in one way or another – a higher rate of income tax or GST, or a reduction in government services are the obvious candidates. Why is dividend imputation important? Perhaps the divisive nature of this policy change derives from the fact that the distributional consequences of a company tax cut are uneven. As Paul Keating has often said, local investors, in particular the owners of small and medium enterprises, are not directly impacted by a change to the rate of company tax because of dividend imputation. However, if company tax is cut, higher wage costs will need to be borne by these businesses. To some extent we will see foreign ownership crowding out domestic ownership. At the big end of town, dividend payout ratios are much lower. Apart from a small cohort of New Zealand residents, non-resident shareholders are unable to claim Australian franking credits. From their point of view, an Australian franking credit carries no value. Taking into account the needs of both its foreign and domestic shareholders, the management of a company with a significant proportion of foreign ownership (such as BHP or Rio Tinto) will pay out a smaller share of its operating cash flows as dividends. With lower payout ratios, domestic investors in these companies receive fewer franking credits and effectively pay some company tax. These are the domestic investors who stand to gain from a cut to company tax. Under a lower company tax rate, these investors will enjoy higher capital gains and contribute to investment growth.

Do we need action?

Our modelling shows that the starting point is crucial. We calculate that the upfront loss of government revenue is too large to justify the later benefits in terms of investment and wage growth. From a different starting point, the story may have been quite different. With less foreign-owned capital to start with, the loss of tax revenue from existing foreign investment may have been justified. Ironically, if we hadn't already been so successful in attracting foreign capital at the existing 30 per cent tax rate, the case for a tax cut would be a lot stronger. Australia is fortunate to have the well-deserved confidence of the world's investors, who have made a significant contribution to our economic landscape and relatively high standards of living. While business investment goes through a weak patch, action may appear warranted. However, a company tax cut is not the "only lever" we have left in the toolbox, nor is it even a suitable lever at this point in time.   Top