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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.


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Labor's shadow assistant treasurer Andrew Leigh pushes land tax over stamp duty

Eryk Bagshaw, The Sydney Morning Herald, 20 April 2017

Labor frontbencher Andrew Leigh has advocated for a transition from stamp duty to land tax, claiming the current system hurts younger and poorer first home buyers while entrenching inequality. In a wide ranging speech at the Crawford School of Public Policy on Thursday, the shadow assistant treasurer will also take aim at the education sector, suggesting experiments should be run on children and schools to make sure that resources are spent in the most effective way. He will also advocate for a new public holiday every election year called "Deliberation Day" to where citizens debate their political future in schools and town halls around the country. Dr Leigh's comments on housing come a month after the Parliamentary Budget Office costed a Greens proposal that would kill stamp duty and replace it with a more efficient yearly land tax, saving home buyers from upfront charges of up to $40,000 in Sydney and $55,000 in Melbourne, while eventually delivering the government billions of dollars. On Wednesday, Dr Leigh will tell the audience that "to the extent that it falls on people buying their first home, stamp duty on first homebuyers isn't just less efficient than land tax, it's also less equitable." "The same goes for capital gains tax and negative gearing," he said. "These tax expenditures aren't merely inefficient, they're also inequitable, with half the benefits going to the top 10th of the population. In the case of negative gearing, the typical teacher or nurse gets less than $300 a year, while the typical surgeon or anaesthetist gets over $3000 a year." Labor's shadow treasurer Chris Bowen has pledged to curb negative gearing but refused to be drawn on whether it would help fund any transition from stamp duty to land tax, saying it was a matter for the states while also praising recent changes made by the ACT and Victorian governments. The Turnbull government has all but ruled out any significant changes to negative gearing or capital gains tax ahead of the May budget. Dr Leigh said as well as housing, education was a key lever in reducing inequality. "In ensuring that resources are spent in the most effective way, we can learn from international examples such as Britain's Education Endowment Foundation," he said. "In Australia, we don't have an equivalent. Like medicine in the 19th century, the main focus is on expert opinion and case studies, rather than rigorous controlled experiments." He will also highlight the membership decline of "class mixing institutions" such as Scouts, Guides, the RSL and Rotary and the impact on political discourse by calling for a new public holiday. "Deliberation Day is the notion that in election years, we should set aside a civic holiday on which citizens are encouraged to come together and debate the nation's future," he said. "The day would create a conversation among 800,000 Australians – making it the biggest civic conversation in our history." Top

Scott Morrison: Online firms 'had years to prepare for GST'

Ben Butler, The Australian, 18 April 2017

Scott Morrison has dismissed fears of tax experts and online retailers who say the industry has not been given enough time to get ready for new legislation extending the GST to imports worth less than $1000. The Tax Institute, which represents Australia’s tax accountants and lawyers, has told a Senate inquiry the new laws are too complicated, lack teeth because goods are not stopped at the border and are being introduced too quickly. Global online retailer Amazon, which is tipped to be on the verge of setting up shop in Australia, and fashion website ASOS have also told the inquiry the time­frame to implement the law is too tight. Legislation eliminating an exemption from GST for imports worth less than $1000 is due to take effect from July 1, but the earliest it can pass the parliament is next month. “The model proposed was announced in August 2015, providing years for affected providers to prepare for the changes and is consistent with the direction being pursued internationally,” the Treasurer said. “We will continue to work to resolve implementation issues. However, we will not step back from ensuring our tax base is fit for purpose in the new digital economy.” The new law is under scrutiny by the Senate Economics Committee, with a report due next month. Mr Morrison said the legislation was designed to “close out loopholes that multinationals and big business are using to avoid paying Australian tax”. “It creates a fairer tax system for Australians and supports Australian small businesses by creating a level playing field against foreign competitors,” he said. “These changes ensure Australian businesses, particularly small retailers, do not continue to be unfairly disadvantaged by the current GST exemption that applies to imports of low value goods. Millions of Australians rely on jobs in retail and it is unfair that major entities continue to facilitate sales into Australia which are GST-free.” However, in a submission to the inquiry last week, the Tax Institute said it was concerned the law would fail to have any effect. “We are concerned that the proposed amendments are a ‘one size fits all’ approach and do not provide sufficient powers of enforcement of the law, nor sufficient ‘encouragement’ to the range of overseas suppliers (from large to small) to adhere to the proposed legislative changes, either due to a lack of awareness or by deliberate intent,” Tax Institute president Matthew Pawson said in the submission. He said that given the bill was unlikely to pass until next month, overseas suppliers had “very little time” to get their systems in place to comply with the law. This contrasted with the 18 months Australian businesses had to implement the GST when it was introduced in 2000. “Given the difficulties the ATO is likely to have in enforcing the new rules, it will require significant goodwill from overseas suppliers for them to voluntarily comply with the new rules,” Mr Pawson said. “The short timeframe in which to implement these new rules is not only unrealistic but also likely to largely remove the goodwill of overseas suppliers that might otherwise be relied on for overseas suppliers to comply.” His submission adds weight to calls by retail websites including Amazon, eBay and Alibaba to shift from the Turnbull government’s proposed model, where they would collect GST, to the model favoured by the opposition, where freight companies bear the cost of collecting the tax. Freight companies, including German giant DHL and America’s FedEx, are vehemently opposed to any such move. “It is our view that, in order to enforce the proposed legislation, it would be appropriate to put in place measures to identify and tax supplies from nonconforming overseas businesses at the point of import,” Mr Pawson said. “To not do so would significantly undermine the integrity of the proposed system. “Although we recognise that any measure to tax at the point of import would likely slow down the processing of low value parcels at the border, cause delays in delivery times and potentially be costly, we would view this approach as the only viable enforcement approach.” Top

Coalition may limit number of properties investors can buy

Jacob Greber and Laura Tingle, The Australian Financial Review, 18 April 2017

The federal government has been examining ways to cap the value of tax breaks for housing investment as it continues to wrestle with the housing affordability issue. While the government has firmly ruled out Labor's plan to dump negative gearing, and has downplayed the likelihood of lowering capital gains tax concessions, sources have told The Australian Financial Review the government has investigated the possibility of putting a limit on the number of properties that investors can buy. An alternative approach may be to impose a dollar value limit on how much can be negatively geared by investors. Questions around the preferred option hinge on how to find a measure that recognises large differences between property markets around the country and avoids generating new regional or price-bracket distortions. "You have to find a way to make it uniform," one source said. The government has been eager in recent days to hammer home the fact that relatively few Australians negatively gear a large portfolio of properties. Assistant Treasurer Michael Sukkar said on Monday that 72 per cent own just one property, and 90 per cent own no more than two. In other words, preventing negative gearing from the third property onwards may be consistent with Treasurer Scott Morrison's insistence that changes to the housing market be done in a way that is "surgical" rather than involving a "chainsaw". A cap on tax treatments would also have the advantage of limiting the future cost to the budget of housing tax concessions, while avoiding a sharp collapse in prices, which Mr Morrison is keen to avoid. Mr Sukkar on Monday accused Opposition Leader Bill Shorten of being motivated to dump all negative gearing in order to save $37 billion in the budget. "He has now shown his true colours, admitting it's just a cash cow designed to raise money for his other 'policies'," Mr Sukkar said. "To add insult to injury, Bill Shorten claims his housing tax will help first home buyers. We know this is far from true. It will only hike up rents, putting more pressure on those in the rental market and rental stock that is often utilised by prospective first home buyers." Housing continues to dominate the government's preparation for the May budget, with a deep internal split over whether to allow first-time buyers to access their superannuation savings to fund property deposits. While Prime Minister Malcolm Turnbull has distanced himself from the idea, it continues to be flagged as part of a broader package to address housing affordability - sparking anger from within some parts of the Coalition who don't believe the government should be intervening in the market. "You've got to wonder who was the brains trust that said the Turnbull government should make this budget all about housing affordability when it's an issue where, besides immigration and tax policy, the main policy levers rest with the states and the market," wrote Peta Credlin, former chief of staff to former Prime Minister Tony Abbott, over the long weekend. Mr Abbott repeated over the weekend his insistence that scaling back immigration would help improve affordability. Shadow minister for productivity Andrew Leigh scoffed at the Coalition's internal fights. "They're far more concerned with fighting one another than they are with fighting for ordinary Australians," Mr Leigh said on Sky. "Challenges like climate change, housing affordability, economic growth going by the wayside while the Liberal Party engages in these internal squabbles." Top

Financial distress looms due to spike in negatively geared properties among Australia's poorest: report

Nassim Khadem, The Sydney Morning Herald, 18 April 2017

Australia's poorest people are taking on negatively geared property investments, despite their inability to manage the risks, a new report from KPMG shows, putting them at severe risk of financial distress when interest rates begin to rise. While the proportion of households facing economic hardship has remained static in recent years, the total number of very poor households has risen and reached almost half a million people. Household incomes have grown, not because of rising wages and salaries, but rather due to higher investment income and government transfers, according to KPMG Economics' report Financial Stress in Australian Households: the haves, the have-nots, the taxed-nots and the have-nothings. The report found that the bottom 20 per cent of households recorded the highest rate of growth in investment income, at 8.5 per cent per annum, compared to an average of 2.3 per cent over the past decade for the other households. Household incomes have grown, not because of rising wages and salaries, but rather due to higher investment income and government transfers, according to KPMG Economics' report Financial Stress in Australian Households: the haves, the have-nots, the taxed-nots and the have-nothings. The report found that the bottom 20 per cent of households recorded the highest rate of growth in investment income, at 8.5 per cent per annum, compared to an average of 2.3 per cent over the past decade for the other households. This increase reflects a greater exposure to investment activities such as negatively geared property investment, putting people on lower incomes at risk of being unable to meet their mortgage repayments should interest rates rise.

Negative gearing under fire

According to the 2014-15 taxation statistics released by the Australian Taxation Office last week, 1.27 million people who negatively geared recorded a rental net loss, slightly down from 1.3 million claimed the year prior. The number of Australians with a rental property has increased to just over 2.05 million, up from 1.98 million in 2012-13. But the amount of losses claimed by Australians on mortgage interest payments and other items against their taxable income reduced in line with lower interest rates. In 2014-15, the net result from rentals was a loss of $3.6 billion, down from $5.7 billion in total loss in 2012-13. While people across all income spectrums claimed losses, those on the highest incomes were the biggest beneficiaries in dollar terms. The data also shows that the number of investors with one rental property has grown by 2.4 per cent over the two years to June 2015, but the number of investors with two or more rental properties has grown by nearly 34,000, or 6.2 per cent over the same period. "It seems that once you're hooked on the drug of investing in property, you want more and more,"  KPMG chief economist Brendan Rynne said. "Any increase in our historically low interest rates would cause serious problems given the growth of outstanding residential loans over the past decade." Given housing costs are the largest single expenditure that households face, he said "fresh policies to target this issue are sorely needed". In recent weeks, there's been a growing chorus of voices including the Australian Institute of Company Directors and the chair of the government's financial system inquiry David Murray calling for policy changes to negative gearing and capital gains tax concessions. Reserve Bank governor Philip Lowe has also said that one of the reasons investor loans and interest-only loans were climbing rapidly and contributing to higher house prices is due to "the taxation arrangements that apply to investment in residential property in Australia". But Treasurer Scott Morrison ruled out any changes to negative gearing in May's federal budget.

About 460,000 households in 'hardship'

The KPMG report examines Australian households over the past 20 years, drawing data from the Household Income and Labour Dynamics in Australia (HILDA) 2017 survey, and Australian Bureau of Statistics (ABS) Household Expenditure survey, which covers the years 1998-2010. Around 10 to 15 per cent of households appear to be consistently unable to pay bills and debts as they fall due. These are the "have-nots" and they comprise nearly 1.4 million households. Then there is the "have-nothings" – households who live with entrenched disadvantage – unable to afford heating and meals, need to pawn possessions or require assistance from welfare organisations. The report says they represent about 3 to 5 per cent of Australian society. The "have-nothings" category now constitutes about 460,000 households. Since the turn of the century, 94,000 households joined the "have-nothings". Spending on non-essential items has also fallen, the report said. One-quarter of Australia's households cannot afford annual holidays for one week a year away from home. One-fifth of households are unable to entertain themselves away from home once a fortnight. And 10 per cent of households cannot afford to have a special meal with their families or purchase new clothes.

Call to tighten welfare payments

KPMG warned against taxing the rich more. It suggests the Turnbull government instead tighten up welfare payments. Policies to deliver welfare to the very poorest are less effective than to slightly better off recipients, the second-lowest 20 per cent of households. "While overall, the social safety net appears to be working as intended, it is curious that the second-lowest category receives proportionately more in transfer payments than they pay in tax compared with the very poorest people," Mr Rynne said. "This suggests welfare payments might need better targeting." The report said over the past 35 years, transfers payments have risen from representing about 30 cents per dollar of tax revenue to now represent about 40 cents per dollar of tax revenue; an increase of 33 per cent. Income from the top 40 per cent of Australian households is being redistributed to pay for the transfer benefits received by the bottom 60 per cent of Australian households. The wealthiest households still receive a small amount of government support, most likely through some form on non-means-tested payments, such as the $7500 childcare rebate. The report said targeting of transfer payments loosened in 2009 when the then Rudd government made payments to households under its $52.4 billion package designed in response to the GFC, but "was never tightened up sufficiently once the need for the stimulus subsided". "Once middle-class welfare is given, it is politically difficult to take it away," the report said. Top

eBay threatens to block Australian customers in response to 'Amazon' tax

Misa Han, The Australian Financial Review, 17 April 2017

Online marketplace eBay is threatening to geoblock Australian customers to stop them from buying from overseas sellers if the government goes ahead with a 10 per cent GST on all goods imported into Australia on July 1. In a submission to the Senate inquiry on the proposed tax, eBay said the platform may have to stop Australian buyers from purchasing from overseas sellers. "Regrettably, the government's legislation may force eBay to prevent Australians from buying from foreign sellers. No tax would be paid to Australia and none would be owed. It would raise no revenue, deny Australians access to choice and lessen price competition," eBay Australia and New Zealand vice-president Jooman Park wrote in the submission. "This solution would not even represent a win for bricks and mortar retailers, because Australians would still find ways to buy online. They would do so direct via dot.coms without paying GST and they would lose the confidence they current enjoy buying from eBay with the advantage of its trusted seller ratings. This appears to be the most likely outcome at present," he said. The "Amazon tax", announced as part of last year's budget, is due to hit consumers with 10 per cent GST on all goods that are imported into Australia starting from July 1 and was introduced following a long-running campaign by local retailers, including Gerry Harvey, for a "level playing field" for Australian retailers. Currently, imported products such as cosmetics, clothing and books worth less than $1000 are GST-free. The government expects the tax to raise $300 million in the next three financial years. Under the proposed laws, "electronic distribution platforms" like eBay would be treated as the supplier of the products and would be responsible for paying GST on behalf of overseas sellers.

'Less harmful to block imports altogether'

eBay said in its submission most online marketplaces will require at least "several years" to develop the systems in order to comply with the new laws. However, it said the cost of introducing the system changes for Australia was likely to too high and it would be easier to geoblock exports to Australia. "However, a far more likely scenario is that the costs of compliance for one single country will outway [sic] any possible benefits for these internationally operating marketplaces and it will, therefore, be less harmful to block imports altogether," Mr Park said. K&L Gates tax partner Matthew Cridland said given the bill was only introduced in February, the July 1 start date will give multinational companies insufficient time to come up with a GST collection mechanism. "This will be insufficient time for international companies to update their systems to comply with the reforms, contributing to low compliance," he said. He said there may be higher enforcement by multinational companies like eBay if Australia waits until other countries introduce similar laws so they can update their platform globally. "There will likely be higher compliance if global companies deal with similar laws in multiple large jurisdictions. This will also allow tax treaties to catch up so that there is greater mutual co-operation around enforcement and compliance," he said. eBay said it was a "misconception" to think online marketplaces are equipped to handle the complexity of GST collection. "This is wrong and completely ignores the way third party online marketplaces function. Compliance with GST collection and remittance rules will require a very significant investment of human and financial resources in product development and administration," Mr Park said.

'Anti-consumer and anti-free trade'

The proposed "Amazon tax" sparked criticism from other stakeholders, including the American Chamber of Commerce chief executive who has labelled it "anti-consumer", "anti-free trade" and "not consistent with the government's pro-growth innovation agenda" because it hinders Australian consumers from accessing the most competitive services available and acts as a disincentive for some foreign companies to do business with Australia. Amazon said in its submission it supports scrapping the current $1000 GST threshold, so all goods imported into Australia are subject to the 10 per cent GST and there is a "level playing field" for all businesses. However, Amazon said under the proposed model, non-compliant sellers and online marketplaces will be able to ship parcels to Australia at lower prices, which will encourage Australian consumers to buy from less reputable overseas vendors at increased risk. Amazon said Australia Post and express carriers such as FedEx and DHL, rather than online marketplaces, should be responsible for collecting GST from overseas sellers. It said while this would require changes to IT infrastructure, it was likely to be "less burdenson overall" because systems are already in place for processing goods above $1000. Alibaba, in its joint submission with eBay and Etsy, an online marketplace for bespoke products, agreed with Amazon that GST should be collected by logistics providers. Alibaba said in the submission online marketplaces that just provide listing services should be excluded from the Amazon tax, as they do not set the price of goods, handle the goods or have knowledge of the flow of the physical goods. Sources said Alibaba was also considering geoblocking Australian consumers from buying from overseas sellers using the AliExpress, however an Alibaba spokesman said it was "premature" to comment on the issue. Top