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Tag Archives: capital gains tax

Cherchez des revenus

When my husband lost his job not long after the birth of our first child, my immediate reaction was to ring my old boss and go back to work. I didn’t sit there thinking what spending I could cut – I actively pursued employment. We were already pretty frugal, living on one income, so cuts would have meant a lowering of our living standard – doable but not my first choice.

Which is why everything this government is doing in the budget seems so wrong to me.

They screamed blue murder about the burden on cost of living imposed by the carbon tax but the cuts they are making take far more away from those least able to afford it than removing the carbon tax will replace. The poor, the sick, the elderly, the unemployed, our students – all will face a substantial reduction in future disposable income.

While we increasingly hear about the lack of affordable housing, and a possible housing price bubble due to low interest rates and a burgeoning investment market sending prices soaring, both parties hasten to say they have no intention of changing the negative gearing tax concessions. Why not?

Negative gearing allows investors to deduct losses made on rental properties from their other income, thereby reducing their overall annual tax liability. The Grattan Institute says it costs the federal government $2.4 billion a year, and there is “little justification for it”.

The Reserve Bank said strong demand by investors meant investor housing loans now accounted for about 40 per cent of all home loans. It said it had become so concerned about Australia’s overheating property markets that it was openly questioning whether bank lending practices were “conservative enough”.

Once again, I find this an odd statement. If the banks’ lending becomes more conservative, the people who will miss out on loans are the first home buyers, not the investors. Why not make it less attractive to investors by removing negative gearing? They are the ones driving up the prices.

Then there is their approach to superannuation.

As Treasury revealed in the budget, the annual cost of superannuation tax concessions is set to surge in coming years, making the current cost — nearly $32 billion — look paltry as it rises to a remarkable $50 billion in 2017-18. At that point the cost of superannuation will exceed the cost of the age pension

Australia’s richest taxpayers will collect over $35.5 billion in tax concessions via the superannuation system over the next five years, and by 2017-18 they will be taking over $8 billion a year.

And far from contributing to the burden of helping repair the deficit, the top 5% of taxpayers will enjoy an increase in tax concessions above current levels of over $2.9 billion dollars by 2017. That increase by itself is almost enough to wipe out the revenue generated by the government’s temporary deficit levy on incomes over $180,000, which is forecast to yield just over $3 billion in that period.

Just curbing the growth between now and 2017-18 could deliver nearly $15 billion to the government, several times more revenue than the temporary tax levy, twice as much as the cuts to foreign aid, and many multiples of savings through punitive cuts to Newstart.

Hockey also removed the legislation to tax retirement incomes at 15% on the excess over $100,000 pa, foregoing over $3 billion in revenue.

At the other end of the scale, the people most likely to qualify for an old age pension are having their superannuation savings slashed by the delay of the superannuation guarantee increase by 7 years and the removal of the low income co-contribution.

And then we have capital gains tax concessions.

The other big costs are the capital gains tax exemption on the family home (estimated to grow to $57 billion over the three years to 2017-18) the 50 per cent discount on capital gains (which could hit $70.5 billion over the same period) and the cost of CGT discounts for individuals and trusts (estimated at $28.3 billion).

Whilst removing the CGT exemption from the family home could have deleterious impacts, a broad-based land tax (preferably in place of stamp duties) would encourage a more efficient use of the housing stock and improve labour mobility, penalise land banking and vagrancy (increasing effective land supply in the process), and help to make infrastructure investments self-funding for governments (since any land value uplift brought about through increased infrastructure investment would be partly captured by the government via increased land tax receipts).

A report released earlier this year by the International Monetary Fund (IMF) estimated that Australia has the highest tax expenditures in the OECD when measured against GDP. These include government revenues foregone as a result of differential, or preferential, treatment of specific sectors, activities, regions, or agents. They can take many forms, including allowances (deductions from the base), exemptions (exclusions from the base), rate relief (lower rates), credits (reductions in liability) and tax deferrals (postponing payments).

There is a strong case to limit superannuation concessions, which have increasingly become a mechanism for richer older people to avoid paying tax, rather than a genuine means for Australians to pay for their own retirement and avoid drawing on the Aged Pension. There are very good reasons to quarantine negative gearing losses, so that they can only be applied against income from the same asset, as well as removing the capital gains tax concession on investments (why should they be taxed at a lower rate than income?). These concessions are skewed towards the wealthy and high income earners, undermining the progressiveness of the tax system.

Mathias Cormann assures us that we have very strict tax avoidance laws.

These “strict” laws allow 75 individuals who made an average of $2.6 million each in 2011-12 to pay no tax at all – no income tax, no Medicare levy and no Medicare surcharge.

These “strict” laws allow almost a third of Australia’s largest companies to pay less than 10¢ in the dollar in corporate tax.

Ernst & Young is the auditor of Westfield Group, James Hardie and 21st Century Fox, all of which pay less than 1 per cent tax, according to the report, Who Pays for Our Common Wealth, produced by the Tax Justice Network and the union United Voice.

It is also the auditor of some of the US multinational tech companies accused of paying minimal tax in Australia, including Google, Apple, Amazon and Facebook.

Accounts show 21st Century Fox spent $US19 million on tax advice from E&Y in 2013.

The G20 assure us that they are talking about how to cut down on tax avoidance. A deal struck at the G20 summit in Cairns will see authorities in more than 40 countries sharing information — including bank balances and income — to identify companies that avoid tax.

But Australia will not begin swapping the financial details until September 2018, one year after countries including Britain, Germany, India, Ireland, The Netherlands and a handful of tax havens.

Why wait? We make our own laws, we could close the loopholes right now if we wanted to. Instead, we are slashing staff at the Australian Tax Office by so much (4,700 over the next few years) that they will not have the personnel to pursue tax cheats.

“Morale is down and 3000 of our most senior staff have recently taken redundancy package,” said one former officer. “There was also an absurd clear out of senior transfer pricing staff about two years ago, so there is very little likelihood of the ATO ‘manning-up’ on multinationals any time soon. The general impression among senior ATO officers is that we are supposed to give the big firms what they want and to usher the revenue out the door. The News decision (not to appeal the $882 rebate to Rupert) is symptomatic of that and a lot of staff were pissed we caved on that case.”

With reports that one in three elderly Australians are living in poverty, despite being among the most highly educated senior citizens in the world, that 17% of our children live in poverty, that making unemployed people under 30 wait six months for income support and raising the eligibility age for the dole to 25 could breach human rights to social services and an adequate standard of living, I would suggest that if Tony Abbott wants to spend hundreds of billions on defence and border security he starts taxing his party donors, beginning with Rupert.

Perhaps you may want to see how the French are approaching their deficit.

Il est evident. Cherchez des revenus, stupide.