Government’s tax reform vision (continued)

A fairer and more sustainable tax system

The Government’s reforms will ensure that the tax system is fairer and more sustainable. It will reduce red tape and complexity for taxpayers, while ensuring the integrity of the tax system.

• The Government is reforming the tax concession for living-away-from-home allowances and benefits, by ensuring it can only be used for the expenses of people who are legitimately maintaining a second home in addition to their actual home, for a maximum period of 12 months.
• The Government is reforming the fringe benefits tax (FBT) treatment of cars, to remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession. Instead of providing a sliding scale of rates that rewards those who drive further, the Government is transitioning to a flat rate by 1 April 2014 that will apply, irrespective of the distance travelled. The Government is also modernising the method for determining the taxable value of airline transport fringe benefits, to a market value method, which is consistent with commercial practice.
• The Government is removing a large tax concession for generous executive salary packages by better targeting the Employment Termination Payment (ETP) tax offset — keeping the offset for ETPs relating to genuine redundancies and other hardships, but taking into account the total taxable income of those receiving other ETPs, including golden handshakes. The tax treatment of people who become genuinely redundant, or lose their job due to illness or disability, will be unchanged.
• To ensure the integrity of the tax system, the Government also removed the Low Income Tax Offset for non-work income of minors. This measure has enhanced the fairness of the taxation system and discourages the tax avoidance that can occur when high income earners income split with their children to avoid tax.
• The Government is also converting the Education Tax Refund into a simple twice yearly payment — the Schoolkids Bonus. This will mean that more people will be able to access the payment, and some will be eligible for more than they were previously. In addition, eligible recipients will no longer have to keep receipts to support their claim. Not only does this make tax time simpler for families, it makes the payment timely and gives families greater flexibility in how they choose to use the bonus.
• The Government will be investing in better targeted participation programs in a more cost effective way, by phasing out the mature age worker tax offset (MAWTO) which was a very high cost method of facilitating participation. The Government will be maintaining the MAWTO for people who are 55 or older on 1 July 2012, as they have built the MAWTO into their household budgets.
• The Government is ensuring the sustainability of tax revenues and the health system, while protecting those on modest incomes. From 1 July 2012, the Government will introduce a means test for the Net Medical Expenses Tax Offset, preserving the benefit for those under the Medicare Levy Surcharge (MLS) threshold, and reducing the rate and increasing the threshold for those over the MLS threshold.
• From 2012-13 the Government will improve the fairness of the superannuation tax system by introducing a Low Income Superannuation Contribution, which will ensure that 3.6 million low income earners effectively pay no tax on their Superannuation Guarantee contributions. The Government will also improve fairness by reducing the tax concession which very high income earners receive on their concessional contribution, so it is more in line with the concession received by average income earners.
• In addition, the Government will increase the concessional contributions cap for individuals aged 50 and over with superannuation balances below $500,000 from 1 July 2014.
• The Government will make the transfer system more sustainable by increasing incrementally the eligibility age for the Age Pension from 65 in 2016-17 to 67 in 2023-24, recognising the retirement plans that people have already made.

Further consultation

These are the three basic principles for the Government’s ongoing tax reform, and the Government has demonstrated that it has been steadily progressing these reforms since coming to office. However, the work has not finished, and the Government has committed to several tax reform processes to deliver the next steps in the reform process.

• The Business Tax Working Group recently identified the loss carry-back reforms, introduced in this Budget, as a worthy initiative. The Working Group will continue to identify and consult on other reforms to the business tax system, delivering further fiscally responsible recommendations by the end of the year.
• The Government has established the Superannuation Roundtable to consider additional ways of providing Australians with more options in retirement and improving superannuation concessions.
• The New South Wales and South Australian Treasurers have agreed to work with the Council for the Australian Federation to develop a state tax reform plan. This will progress much needed reform of inefficient taxes, as well as harmonise arrangements for business and the community.
• The Government also established the Not-for-profit Sector Tax Concession Working Group to examine whether existing taxation support for the sector can be provided in a fairer, simpler and more effective way. The Working Group was established in response to the discussions at the Tax Forum about whether the current support provided through tax concessions to the sector can be better delivered.
• The Government will provide funding to establish a Tax Studies Institute to deliver high quality, independent research into the tax and transfer system.

These initiatives represent a clear and compelling reform agenda. They are designed to maximise Australia’s opportunities while also meeting the challenges posed by the ageing of our population and shifts in the global economy that will see the return of boom conditions in our mining sector.

This reform challenge should not be underestimated, particularly in these fiscally challenging times, but the Government is committed to meeting these challenges in an economic and fiscally responsible way, while remaining a low taxing country.