tag:theconversation.com,2011:/africa/topics/henry-tax-review-7036/articlesHenry Tax Review – The Conversation2023-10-23T05:59:53Ztag:theconversation.com,2011:article/2161072023-10-23T05:59:53Z2023-10-23T05:59:53ZThe High Court decision on electric vehicles will make charging for road use very difficult<figure><img src="https://images.theconversation.com/files/555159/original/file-20231023-17-ur8u82.jpg?ixlib=rb-1.1.0&rect=411%2C0%2C4901%2C3463&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/search/electric-vehicles?image_type=photo">Shutterstock</a></span></figcaption></figure><p>The High Court of Australia’s <a href="https://www.lawyersweekly.com.au/biglaw/38319-electric-vehicle-tax-invalid-under-constitution-high-court-finds">decision</a> to invalidate Victoria’s electric vehicle tax has been widely noted as a major judgement in the history of federal-state taxation powers.</p>
<p>In 2021, Victoria introduced a 2.5 cents per kilometre charge for electric vehicles using public roads. Ostensibly this was to compensate for the likely loss of Commonwealth fuel excise revenue from the shift to electric vehicles.</p>
<p>The court’s decision, released last week, effectively expanded the definition of an excise to include any tax that has “a reasonably anticipated economic effect on the pattern of demand”. By imposing a cost on the use of vehicles, and thereby potentially reducing demand for them, the road user charge is an excise.</p>
<p>At the time of federation in 1901, automobile technology had advanced to the level of a “<a href="https://researchrepository.rmit.edu.au/esploro/outputs/doctoral/Early-Australian-automotive-design-1895-1953/9921863791401341">motorised dog cart powered by kerosene</a>”. There is no constitutional right to operate a motor vehicle on public roads, yet the High Court has given the Commonwealth the right to charge for motor vehicle use on roads.</p>
<p>In making this decision, the court has gravely weakened the capability of the states to set, regulate and fund metropolitan transport planning objectives.</p>
<h2>Australians rely heavily on private vehicles</h2>
<p>Between 68 per cent (<a href="https://www.transport.nsw.gov.au/data-by-region">Sydney</a>) and 75 per cent (<a href="https://public.tableau.com/app/profile/qldtravelsurvey/viz/HouseholdTravelSurveyInteractiveReport-combinedv2019_3/QueenslandHouseholdTravelSurvey">Brisbane</a>) of travel in Australia’s major cities is by private motor vehicle, making them the most unsustainable national grouping within a developed country outside the United States. Car dependence causes various problems that are not adequately accounted for in current pricing regimes.</p>
<p>These include carbon emissions, productivity costs of congestion, traffic deaths and injuries to people and animals, respiratory and systemic diseases from exhaust and tyre particles, and cardiovascular disease from sedentary behaviour.</p>
<p>Because they generate many of the negative impacts of conventional vehicles, electric vehicles are not a sustainable mode of urban transport. And there is increasing recognition that moving from internal combustion engine vehicles to electric vehicles won’t reduce the impact of climate change within emergency timeframes.</p>
<p>The best way to reduce damage from car use in cities is to reduce usage overall. Along with regulatory measures that impede, exclude, ban or ration use of cars, taxes, levies, charges and prices are important mechanisms.</p>
<p>Since the 1980s, various agencies have argued the societal costs of motor vehicle use are under-estimated. The Henry Tax <a href="https://treasury.gov.au/review/the-australias-future-tax-system-review/final-report">Review </a>(2010), the last major comprehensive review of national taxation argued a combination of road specific congestion charges, network access charges and a variable charge such as fuel tax, should be applied to vehicle use costs.</p>
<p>This approach has been echoed in further advice from the Productivity Commission, Infrastructure Australia and Infrastructure Victoria, as well as by motorist groups such as the RACV.</p>
<h2>The states are losing control of managing their roads</h2>
<p>The High Court decision to reserve congestion and generalised road use charging to the Commonwealth severely limits states capacity to manage the costs of urban car use by way of taxes, charges, levies or fees, such as under section 1(d) of the <a href="http://classic.austlii.edu.au/au/legis/vic/consol_act/rsa1986125/s1.html">Victorian Road Safety Act 1986</a>. The section seeks to ensure “the equitable distribution within the community of the costs of road use”.</p>
<p>But, if Victorians now voted for road user charging to shift the <a href="https://public.tableau.com/app/profile/vista/viz/VISTA-TripsDraft/Trips-methodoftravel">71% of travel currently undertaken by car</a> in Melbourne to sustainable modes, they would be refused by the Constitution.</p>
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Read more:
<a href="https://theconversation.com/made-in-australia-the-electric-vehicle-revolution-gives-us-a-chance-to-revive-an-industry-203909">Made in Australia? The electric vehicle revolution gives us a chance to revive an industry</a>
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<p>Any future desire to achieve more sustainable levels of car use of 30-40% of travel, as found in cities like <a href="https://www2.deloitte.com/content/dam/insights/us/articles/4331_Deloitte-City-Mobility-Index/Seoul_GlobalCityMobility_WEB.pdf">Seoul</a>, <a href="https://www2.deloitte.com/content/dam/insights/us/articles/4331_Deloitte-City-Mobility-Index/city-mobility-index_LONDON_FINAL.pdf">London</a> or <a href="https://www2.deloitte.com/content/dam/insights/us/articles/4331_Deloitte-City-Mobility-Index/city-mobility-index_PARIS_FINAL.pdf">Paris</a> - or <a href="https://www2.deloitte.com/content/dam/insights/us/articles/4331_Deloitte-City-Mobility-Index/Seoul_GlobalCityMobility_WEB.pdf">12% in Tokyo</a> - would be impossible to achieve using road pricing, without Commonwealth involvement.</p>
<p>Meanwhile, the Commonwealth lacks a mechanism to collect road user charges. It would need to duplicate the states motor vehicle registration systems, roll out an equivalent system via the ATO, or rely on state cooperation.</p>
<p>A new tussle between the Commonwealth and states is foreseeable over the level of charge, the costs of collection and distribution formula, as well as any differential calibrations. It could be the Commonwealth sets a uniform national road users charge but allows states to add their own loadings to meet their transport objectives.</p>
<p>There may however be workarounds for states to impose per kilometre road user charges on electric vehicles. Victoria could impose an extra levy per kilowatt hour of electricity charged to an EV, for example, given there the close relationship between distance driven and kilowatt-hours consumed. It would be an adventurous High Court that decided the Commonwealth was responsible for setting electricity tariffs.</p>
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Read more:
<a href="https://theconversation.com/the-human-factor-why-australias-net-zero-transition-risks-failing-unless-it-is-fair-214064">The human factor: why Australia's net zero transition risks failing unless it is fair</a>
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<p>Another workaround could be to vest Victoria’s roads within a commercially mandated state-owned corporation responsible for full cost recovery for road use. Road user charges would not comprise excise but rather a commercial transaction between the corporation providing the road service and the motorist paying to use the service. </p>
<p>Australian cities need to move quickly and decisively away from the car as a means of urban transport. Given its opposition to the Victorian road user charge and its newly confirmed powers over urban transport pricing, it is incumbent on the Commonwealth to present a coherent plan to reduce car use in cities.</p>
<p>Although the Commonwealth is currently developing a net zero transport and infrastructure <a href="https://www.infrastructure.gov.au/infrastructure-transport-vehicles/transport-and-infrastructure-net-zero-roadmap-and-action-plan">roadmap</a>, this needs to be urgently broadened to a national strategy for sustainable urban transport, coordinated with the states, and including clear, effective and accelerated ways of reducing car use in cities.</p><img src="https://counter.theconversation.com/content/216107/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>RMIT University receives funding from the Australian Housing and Urban Research Institute to support Jago Dodson's research.</span></em></p>The High Court has ruled the right to charge an electric vehicle tax rests with the Commonwealth despite the Constitution not mentioning cars or roads.Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1428232020-07-19T19:53:30Z2020-07-19T19:53:30ZProgressive in theory, regressive in practice: that’s how we tax income from savings<figure><img src="https://images.theconversation.com/files/348080/original/file-20200717-31-1f6e2yr.jpg?ixlib=rb-1.1.0&rect=0%2C275%2C3970%2C2131&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>We’re told Australia has a progressive tax system – the more you earn, the higher the rate.</p>
<p>And that’s certainly the case for earnings from wages. An Australian on A$35,000 sacrifices 21 cents out of each extra dollar they earn whereas an Australian on $90,000 sacrifices 39 cents.</p>
<p>That’s how it’s meant to be for income from savings, but in practice it isn’t.</p>
<p>Fresh calculations released this morning by the <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">Tax and Transfer Policy Institute</a> at the Australian National University show that low income Australians in the bottom tax bracket pay a higher marginal rate of tax on income from savings than high earners in the top tax bracket.</p>
<p>It is because of exemptions and special rates, and the alacrity with which high earners take advantage of them.</p>
<h2>Super gives the most to the highest earners</h2>
<p>The taxation of superannuation drives the results. </p>
<p>Super contributions are generally taxed at a flat rate of 15%. For low earners on an income tax rate of zero, 15% would constitute a considerable extra impost did the government not refund the difference with a <a href="https://drive.google.com/file/d/1W9FN4deDYY9q0ooFDPNqq1CvYAUz90Ao/view">tax offset</a> that cuts the effective rate to zero. </p>
<p>High earners on the 47% marginal rate do much better. The tax rate of 15% offers substantial tax relief. For them, it is an effective rate of minus 32%.</p>
<p>Other tax concessions are directed at older Australians, who are often on higher incomes than younger Australians.</p>
<h2>Highest bracket, lowest rate</h2>
<p>Our calculation of the marginal effective annual tax rates actually paid on income from savings is published in a report entitled <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">the taxation of savings in Australia: theory, current practice and future policy directions</a>. </p>
<p>It shows that the marginal tax rate high earners pay on additional savings held over a twenty year period is 5.3% of income, on average, whereas for low earners in the bottom (zero) tax bracket it’s 12.2%.</p>
<p>Low earners in the second lowest tax bracket are paying 13.8%.</p>
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<p><strong>Marginal effective tax rates actually paid on income from savings, by bracket</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/348198/original/file-20200718-15-e3c10t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Authors’ calculations using data from the Australian Survey of Income and Housing, 2019.</span>
<span class="attribution"><a class="source" href="https://taxpolicy.crawford.anu.edu.au/">TTPI Policy Report 01-2020</a></span>
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<h2>The way forward: a dual income tax system</h2>
<p>Our report proposes taxing all types of saving at the same flat low rate.</p>
<p>This dual income tax system (a progressive rate for wages and salaries, a flat rate for income from savings) has been used in Norway, Finland, Sweden
and Denmark since the early 1990s. Elements of it are used in Austria, Belgium, Italy, Greece and the Netherlands. </p>
<p>If the rate were 10%</p>
<p>• all interest payments would be taxed at 10%</p>
<p>• all dividends, both domestic and foreign, would be taxed at a rate of 10%</p>
<p>• all capital gains (including owner-occupied housing) would be taxed at 10%</p>
<p>• superannuation contributions would be made from after-tax income and then earnings in the accounts taxed at 10%</p>
<p>• rent and capital gains on investment properties would be taxed at 10%</p>
<p>• the imputed rent from owner-occupied housing (the benefit home owners get from not having to pay rent that is taxed) would be calcuated and taxed at a rate of 10%. An alternative would be to raise the same amount through a broad-based land tax.</p>
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Read more:
<a href="https://theconversation.com/housing-and-tax-why-is-reform-so-hard-3300">Housing and tax: why is reform so hard?</a>
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<p>Our calculations suggest that if the tax were applied broadly at a rate of 6.2%, it would raise as much as is raised now from taxes on income from savings. If income from owner-occupied housing were excluded, the rate would need to be 10.2%.</p>
<p>But there is no particular reason for the rate to be set to generate as much from savings income as it does now. It could be set to raise more, or to raise less.</p>
<p>The design and implementation of a dual income tax should be considered alongside broader changes to the tax and transfer system. In particular, it should be combined with removing opportunities to re-classify income for tax minimisation purposes. We outline some of the considerations <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2020-07/20271_anu_-_ttpi_policy_report-ff2.pdf">in our report</a>.</p>
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Read more:
<a href="https://theconversation.com/tax-free-super-is-intergenerational-theft-60369">Tax-free super is intergenerational theft</a>
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<p>In the meantime, as steps towards a flatter fairer system of taxing income from savings, the government could consider better targeting superannuation subsidies, replacing real estate stamp duty with land tax and including the family home in the means tests for pensions and other age-related benefits.</p>
<p>Our current approach to taxing income from savings is a mess at best and a serious driver of intergenerational inequality at worst. Some savings tax arrangements are progressive, taxing higher incomes more heavily, and some are regressive. </p>
<p>We want to encourage and reward savings. But we also need to remove the crazy incentives that impel ordinary Australians to take part in distorting and costly tax planning schemes.</p>
<p>Our report outlines a way forward, and steps to get there.</p><img src="https://counter.theconversation.com/content/142823/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig works for the Tax and Transfer Policy Institute which is an independent policy institute established in 2013 with an endowment from the federal government. It is supported by the Crawford School of Public Policy of the Australian National University.</span></em></p><p class="fine-print"><em><span>Kristen Sobeck works for the Tax and Transfer Policy Institute which is an independent policy institute established in 2013 with an endowment from the federal government. It is supported by the Crawford School of Public Policy of the Australian National University.</span></em></p><p class="fine-print"><em><span>Peter Varela does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It would be a mistake to think that just because higher earners face higher tax rates, that’s what they pay. When it comes to income from savings it’s the other way around.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityKristen Sobeck, Senior Research Officer, Crawford School of Public Policy, Australian National UniversityPeter Varela, Research Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1209792019-07-28T20:17:43Z2019-07-28T20:17:43ZVoluntary super: a good way to increase women’s dependence on men<figure><img src="https://images.theconversation.com/files/285933/original/file-20190728-43149-m09x3j.jpg?ixlib=rb-1.1.0&rect=0%2C248%2C3692%2C1699&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Having more money now means less money, and more dependence, later.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Making super contributions voluntary for people earning less than A$50,000 a year, as proposed by Liberal Senator <a href="https://www.smh.com.au/politics/federal/make-super-voluntary-for-low-income-earners-new-liberal-senator-says-20190724-p52aer.html">Andrew Bragg</a>, would be a backward step for women. </p>
<p>It would predominantly be used by women, because more women earn less than A$50,000 than men. In 2016-17, <a href="https://data.gov.au/dataset/ds-dga-540e3eac-f2df-48d1-9bc0-fbe8dfec641f/distribution/dist-dga-8553eb2d-9de5-4a57-ad9d-6e52933287b2/details?q=Tax%20Statistics">306,008</a> women earned less than A$50,000, compared with 216,749 men.</p>
<p>Many would find it a help. An extra 9.5% of salary (an extra 12% if compulsory superannuation contributions <a href="https://theconversation.com/frydenberg-should-call-a-no-holds-barred-inquiry-into-superannuation-now-because-labor-wont-114079">climb as planned</a>) would be exceedingly useful.</p>
<p>And most women have much less super than most men. In 2017, the median super balance for women aged 60-64 was <a href="https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx">A$36,000</a>. For men it was A$110,000. </p>
<p>This is partly because women are much more likely than men to take time out of work or to work part-time to care for children and other family members, and partly because of the persistent gender pay gap.</p>
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Read more:
<a href="https://theconversation.com/will-the-real-gender-pay-gap-please-stand-up-64588">Will the real gender pay gap please stand up?</a>
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<p>The gender pay gap means that women contribute less to superannuation, and as a result are much more likely than men to experience <a href="https://www.humanrights.gov.au/our-work/sex-discrimination/publications/accumulating-poverty-womens-experiences-inequality-over">poverty and hardship</a> in retirement and will have to rely on the pension anyway, regardless of super.</p>
<h2>So why not let women take the money?</h2>
<p>Senator Bragg says his proposal could lift disposable incomes for low earners, and save the government <a href="https://bit.ly/2SFgnDa">A$1.8 billion</a> in the first year alone, because earnings taken in cash are taxed more highly than earnings paid into super - although these people are least able to afford the extra tax.</p>
<p>But it could also change the dynamics within relationships.</p>
<p>Compared with <a href="https://www.oecd.org/gender/data/how-do-partners-in-couple-families-share-paid-work.htm">other developed countries</a>, Australia has a high proportion of “1.5 earner” families, made up of a man working full-time (often earning much more than A$50,000) and a woman working part-time (often earning less). </p>
<p>They would be tempted to regard the lower earner’s superannuation account as unnecessary and take the money upfront, using only the higher earners account for retirement. </p>
<p>The inevitable outcome would be a reversal of the <a href="https://www.superannuation.asn.au/ArticleDocuments/359/1907-Better-Retirement-Outcomes-a-snapshot-of-account-balances-in-Australia.pdf.aspx">recent narrowing</a> of the superannuation gap, with women increasingly dependant on their husbands (or a good divorce lawyer) for security in retirement. </p>
<h2>Why not make super meaningful?</h2>
<p>There are alternatives that would reduce the gender gap in retirement incomes. The <a href="https://www.aph.gov.au/parliamentary_business/committees/senate/economics/economic_security_for_women_in_retirement/Report">2016 Senate inquiry</a> into economic security for women in retirement recommended government contributions during parental leave and removing the exemption for employers of low income earners earning less than A$450 per month. </p>
<p>And in 2010 the <a href="http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/final_report_part_1/chapter_12.htm">Henry Tax Review</a> recommended a flat tax concession for super contributions, instead of the present one that widens the gap between low and high earners.</p>
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Read more:
<a href="https://theconversation.com/we-wont-fix-female-super-until-we-fix-female-pay-but-labors-ideas-are-a-start-103529">We won't fix female super until we fix female pay, but Labor's ideas are a start</a>
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<p>Although successive governments have made changes to the superannuation system, none has adopted the recommended flat tax concession. Nor have they shown much concern for workers earning less than A$50,000. </p>
<p>Earlier this month, Senator Bragg’s party pushed through parliament legalisation that <a href="https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Low-and-middle-income-earners/">excludes</a> workers <a href="https://theconversation.com/what-just-happened-to-our-tax-heres-an-explanation-youll-understand-114913">earning less than A$48,000</a> from the full budget tax offset.</p>
<p>Workers earning less than A$50,000 find it difficult to make ends meet. It is true that the super system (and the new tax offset) treats them badly. But allowing them to opt out of super would make them even more reliant on either the pension or better-off partners.</p>
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Read more:
<a href="https://theconversation.com/frydenberg-should-call-a-no-holds-barred-inquiry-into-superannuation-now-because-labor-wont-114079">Frydenberg should call a no-holds-barred inquiry into superannuation, now, because Labor won't</a>
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<img src="https://counter.theconversation.com/content/120979/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Hodgson receives funding from the ARC. Helen is a member of the Social Policy Committee and a Director of the National Foundation for Australian Women (NFAW), and is on the Tax and Superannuation Advisory Panel of ACOSS. Helen was a Member of the WA Legislative Council in WA from 1997 to 2001, elected as an Australian Democrat. She is not a current member of any political party. She is a Registered Tax Agent and a member of the SMSF Association; and holds a superannuation account with an industry fund. </span></em></p><p class="fine-print"><em><span>Myra Hamilton receives funding from the Australian Research Council and a current research grant from CPA. She is an academic member of the Carers NSW Carer Respite Alliance and is on the Board of COTANSW.</span></em></p>Making super voluntary for low earners, as proposed by a Liberal senator would leave more women vulnerable in old age.Helen Hodgson, Professor, Curtin Law School and Curtin Business School, Curtin UniversityMyra Hamilton, Senior Research Fellow in Social Policy, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1141752019-04-23T20:16:46Z2019-04-23T20:16:46ZHouse prices and demographics make death duties an idea whose time has come<figure><img src="https://images.theconversation.com/files/270413/original/file-20190423-175514-ulcc95.jpg?ixlib=rb-1.1.0&rect=764%2C1351%2C2905%2C1809&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">$3.5 trillion is about to be poured into a small number of hands over the next two decades.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Suddenly, death duties are part of the election campaign. </p>
<p>Not that Labor (or the Coalition) is proposing them, but photoshopped fake tweets from Labor figures saying they will introduce them <a href="https://twitter.com/Gary_Hardgrave/status/1120140542472384512">have been doing the rounds</a>, and the Coalition is using the suggestion it its advertising, parading around trucks on whose side is printed: “<a href="https://www.canberratimes.com.au/story/6086351/canberra-liberals-defend-billboard/?cs=14350">Labor will tax you to death</a>”. </p>
<p>At the risk of entering the political (non) debate, its worth drawing attention to a substantial consensus among economists that they are <a href="https://www.economist.com/leaders/2017/11/23/a-hated-tax-but-a-fair-one">something we need</a>.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1119371944250335232"}"></div></p>
<h2>What are death duties?</h2>
<p>Death duties (more formally known as inheritance taxes) are levied on the estates of dead people above a predefined tax-free threshold, prior to their distribution to the beneficiaries. </p>
<p>They have a long pedigree, being currently administered in 19 developed countries. The average rate among members of the Organisation of Economic Co-operation and Development is 15% but rates vary from 4% in Italy to 55% in Japan. </p>
<p>We had them in Australia until the late 1970’s, administered by both the Commonwealth and state governments. However in both cases the taxes were <a href="https://aibe.uq.edu.au/files/1922/AIBE_Inheritance_Tax_Paper.pdf">distinguished by the ease with which they could be avoided</a>.</p>
<h2>Without them, our rich will get richer</h2>
<p>Since death duties went, Australian income inequality has climbed, with the standard measure (known as the Gini coefficient) climbing from <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6523.0">0.27 to 0.32</a> between 1982 and 2016 on a scale where a result of zero would mean income was equally shared and a result of 1 would mean one person earned all the income.</p>
<p>It’s harder to tell what’s happening to the distribution of wealth. The figures don’t go back as far, and the global financial crisis disrupted what appears to have been a long term trend for the distribution to become less equal. The Gini coefficient for the distribution of wealth is 0.52, much worse than in is for the distribution of income. </p>
<p>The removal of death duties is far from the only potential reason. </p>
<p>Others include:</p>
<ul>
<li><p>Demographics. More Australians are older and they are more likely than younger people to own homes whose values have shot up in two waves around the turn of this century and the middle of the 2010s. Almost 90% of the gain in wealth in the past 20 years has been in households headed by someone over 45 years.</p></li>
<li><p>Income growth. Wage growth has slumped during the past decade, leaving higher housing, sharemarket and other asset prices <a href="https://www.rba.gov.au/publications/workshops/research/2017/pdf/rba-workshop-2017-stephen-machin.pdf">as the chief form of wealth growth</a>.</p></li>
</ul>
<p>Untaxed inheritance is likely to matter more. Over the next 20 years about 13% of Australia’s current population is expected to reach its life expectancy, meaning 3.18 million people are likely to die. Their net worth accounts for 27% to 37% of Australia’s total wealth.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-we-should-put-an-inheritance-tax-back-into-the-spotlight-1634">Why we should put an inheritance tax back into the spotlight</a>
</strong>
</em>
</p>
<hr>
<p>A study by financial planning experts at Griffith University estimates that over the next 20 years Australians over 60 will transfer A$3.5 trillion in wealth, worth about <a href="https://www.nomorepractice.com.au/wp-content/uploads/2017/09/FINAL-Gen-XY-Intergeneratonal-Wealth-Transfer-v7.pdf">$320,000 on average to each recipient</a>. </p>
<p>Around four fifths of that wealth will go to the top one fifth of recipients, pushing the Gini wealth inequality coefficient considerably higher. </p>
<p>It’s a concern because societies with bigger inequalities <a href="https://news.harvard.edu/gazette/story/2016/02/the-costs-of-inequality-increasingly-its-the-rich-and-the-rest/">have bigger social and economic problems</a>.</p>
<h2>They are better than the alternatives</h2>
<p>Death duties meet most of the basic conditions for a good tax. </p>
<p>They are fair (in that they treat people in the same situation the same and take more from those who have than those who do not) and they are easy to understand.</p>
<p>Their big advantage over ordinary income tax is that they distort economic activity less: because they are levied on unearned rather than earned income they are unlikely to prod people into earning less.</p>
<p>The Economist magazine puts it this way:</p>
<blockquote>
<p>Unlike income taxes, they do not destroy the incentive to work; whereas research suggests that a single person who inherits an amount above $150,000 is four times more likely to leave the labour force than one who inherits less than $25,000. Unlike capital-gains taxes, heavier estate taxes do not seem to dissuade saving or investment. Unlike sales taxes, they are progressive. To the extent that a higher inheritance tax can fund cuts to all other taxes, the system can be more efficient.</p>
</blockquote>
<p>They are points made a century earlier by US President Theodore Roosevelt <a href="https://www.infoplease.com/homework-help/us-documents/state-union-address-theodore-roosevelt-december-3-1907">who told Congress</a></p>
<blockquote>
<p>No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax</p>
</blockquote>
<h2>Yet they’re not yet popular</h2>
<p>Inheritance taxes pit two widely held views against one another. </p>
<p>One is that governments should leave people to dispose of their wealth as they see fit. </p>
<p>The other is that a permanent, hereditary elite makes a society unhealthy (as well as unfair). The sons and daughters of people who built great companies are not necessarily the best people to run them.</p>
<p>Getting them reintroduced isn’t that unlikely. </p>
<p>The 2010 Henry Tax Review supported them. Noting that what it called a “bequests tax” would help Australia <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm">navigate its demographic changes</a>, it said</p>
<blockquote>
<p>Over the next 20 years, the proportion of all household wealth held by older Australians is projected to increase substantially. Large asset accumulations will be passed on to a relatively small number of recipients. </p>
</blockquote>
<p>However it also noted that </p>
<blockquote>
<p>There would be a need for anti-avoidance provisions, including a tax on gifts. There would, inevitably, be significant administration and compliance costs. A tax on bequests should not be levied at very high rates. People should not be unduly deterred from saving to leave bequests. A substantial tax-free threshold combined with a low flat rate beyond that point would be an appropriate structure for a bequest tax. Bequests to spouses should be concessionally treated. </p>
</blockquote>
<p>The 2015 Treasury tax discussion paper presented to treasurer Joe Hockey also canvassed the idea, although it noted that “<a href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">such taxes can be difficult to administer effectively</a>”.</p>
<p>More recently, on taking on the job of treasurer under prime minister Malcolm Turnbull, Scott Morrision <a href="https://www.smh.com.au/politics/federal/turnbull-government-refuses-to-rule-out-return-of-death-duties-20151114-gkywn9.html">refused to rule them out</a> amid calls for a tax targeting bequests of more than $2 million. </p>
<p>The best chance of bringing an inheritance tax back would be to link to something socially worthwhile such as housing affordability, education or relief from other taxes. Ordinary bequests beneath a high threshold would be exempted, and the threshold would be indexed (it wasn’t, when Australia last had death duties, meaning that over time they became more intrusive and unpopular). Exemptions could be considered for husbands and wives and perhaps for family farms.</p>
<p>It most likely wouldn’t be a big revenue raiser, but it would make an important point: that wealth is worth taxing (at least on death) in addition to income and spending. Taxing wealth in its own right is no more double taxing than is tax on income and expenditure. And if we can do a bit to redistribute the avalanche of wealth about to hit the best off 20 per cent of beneficiaries, it would be no bad thing for the maintenance of what by international standards is still a relatively equal society.</p><img src="https://counter.theconversation.com/content/114175/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Mangan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Four fifths of the coming bonanza of bequests are set to go to the top one fifth of recipients.John Mangan, Professor and Director of the Australian Institute For Business and Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1140792019-03-24T17:49:31Z2019-03-24T17:49:31ZFrydenberg should call a no-holds-barred inquiry into superannuation, now, because Labor won’t<p>The Coalition is running out of time to do worthwhile things.</p>
<p>Facing overwhelming odds of defeat in the election due within weeks, one of its last throws of the dice should be to do something Labor would never do, but which is urgently needed and would set us on the right course for the future.</p>
<p>It’d also cause some trouble for Labor along the way.</p>
<p>It is to launch a full-blown inquiry into the superannuation system Labor has lumbered us with. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=962&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=962&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=962&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1210&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1210&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1210&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage">Source: Australian Tax Office</a></span>
</figcaption>
</figure>
<p>It’s urgent because compulsory super contributions are scheduled to climb from the current 9.5% of salary to 12%, beginning with an increase of <a href="https://www.superguide.com.au/boost-your-superannuation/superannuation-guarantee-rate">0.5% in July 2021</a>, followed by an extra 0.5% in 2022, 2023, 2024 and 2025.</p>
<p>If that seems rapid, and painful, it is because it is due to happen at <a href="https://www.superguide.com.au/boost-your-superannuation/superannuation-guarantee-rate">twice the rate it has been</a>. </p>
<p>Under the schedule imposed by Labor when it was last in office compulsory contributions were to climb by 0.25% of salary in each of 2013 and 2014 and then at twice the rate, by 0.5%, in each of the five years after that. </p>
<h2>Compulsory super is set to jump..</h2>
<p>The Coalition hit pause after 2014 just before the rate accelerated, postponing the series of five much bigger increases until 2022, when it might have hoped that wage growth would be robust enough to cope with it, or when it would have been someone else’s problem.</p>
<p>Labor says it will stick to that schedule, presumably regardless of wage growth or other economic conditions or the need for extra super contributions at the time.</p>
<p>Asked, ahead of the release of the Productivity Commission’s report on how to make super funds more efficient, whether Labor would reconsider the schedule if the Commission found other ways to boost retirement incomes, Labor Treasury spokesman Chris Bowen said it would not.</p>
<p>It’s almost as if – to Labor – lifting compulsory super contributions has the status of a holy writ; perhaps because it would “complete the work” of Labor elder statesman Paul Keating who introduced compulsory super, or perhaps because so many union officials are tied up with the running of the funds that would benefit from the schedule of increases.</p>
<p>In the event the Productivity Commission report released on January 10 found ways to massively lift retirement incomes <a href="https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report">without lifting super contributions</a>.</p>
<h2>…whether we need it or not</h2>
<p>It found unintended multiple accounts and the defaulting of new workers into entrenched underperforming funds were costing members an astonishing A$3.8 billion per year.</p>
<p>Weeding out the chronic underperformers, clamping down on unwanted multiple accounts and insurance policies, and letting workers choose funds from a short menu of good ones and stay in them for life would give the typical worker entering the workforce an extra A$533,000 in retirement. </p>
<p>Even a typical worker aged 55 today would get an extra A$79,000 in retirement.</p>
<p>What the Commission’s report couldn’t say, but stongly implied, was that if the Commission’s recommendations were adopted an increase in costly compulsory contributions might not be necessary. </p>
<p>Its terms of reference limited it to assessing the “efficiency and competitiveness” of what happened to the contributions that were collected.</p>
<h2>Henry was unconvinced</h2>
<p>Another inquiry – less hamstrung – was the Henry Tax Review. It <a href="http://taxreview.treasury.gov.au/content/downloads/final_report_part_1/03_AFTS_final_report_executive_summary.pdf">found no need</a> to increase contributions. Labor treasurer Wayne Swan dishonoured its findings by announcing the proposed increase in contributions on <a href="https://www.scribd.com/document/30798758/Stronger-Fairer-Simpler-a-Tax-Plan-for-Our-Future">May 2, 2010</a>, the day he released its report.</p>
<p>But super wasn’t the main focus of the Henry Review. In the 25 year history of compulsory super, there has never been an inquiry into what the rate should be and what the system has achieved. It’s as if governments of both types have been keen to govern blindly.</p>
<p>So in January the Productivity Commission tentatively ventured beyond its brief, in a recommendation Treasurer Josh Frydenberg has promised to respond to before the election.</p>
<p>It is <a href="https://www.pc.gov.au/inquiries/completed/superannuation/assessment/report">Recommendation 30</a>, for an independent inquiry into the entire system.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=175&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=175&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=175&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265247/original/file-20190322-93024-aomcf4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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</figure>
<p>The independent inquiry would determine whether or not the system we’ve had for the past 25 years has boosted national or even private savings rates, as well as who it has hurt and who it has helped. </p>
<p>They are the type of questions you would think a government would want to answer before lifting compulsory contributions further from 9.5% of salary to 12%.</p>
<h2>Frydenberg could show leadership…</h2>
<p>Indeed, Recommendation 30 explicitly asks that the inquiry “be completed in advance of any increase in the superannuation guarantee rate”.</p>
<p>It is possible to guess what the inquiry would find:</p>
<ul>
<li><p>that almost all increases in employers’ compulsory super contributions come out of what would have been wages, depressing workers take home pay, a finding that <a href="https://theconversation.com/productivity-commission-finds-super-a-bad-deal-and-yes-it-comes-out-of-wages-109638">will not be seriously disputed</a> </p></li>
<li><p>that the system hasn’t boosted national savings - the increase in private savings has been offset by the decrease in government savings brought about by the use of the super tax concessions</p></li>
<li><p>that the increase in private savings has come almost entirely from the middle to low earners who have been unable to escape the impact of the levy, because they have had no other savings they could cut. They are the people who could least afford to save more at the time they were forced to</p></li>
<li><p>the tax benefits have gone overwhelming to the high earners who are saving no more than they would have without them, and without compulsion</p></li>
</ul>
<p>In sum, the inquiry is likely to find that the system is regressive and cruel. Or perhaps not. We won’t know until it is held.</p>
<p>It ought to be conducted by an expert panel whose members are highly respected and who will amass evidence the next government won’t be able to ignore.</p>
<h2>…ensuring Labor does more than look after mates</h2>
<p>Frydenberg ought to appoint the panel now, or within weeks, so that an incoming Labor government can’t dismantle it. </p>
<p>It would be one of his most important legacies. And would give him something to press the next government about should he be in opposition.</p>
<p>In time an incoming Labor government might thank him. </p>
<p>At present, without the scheduled increases in compulsory super, wage growth is just 2.3%. With the scheduled increases of 0.5 percentage points per year, wage growth might fall below the rate of inflation, for five consecutive years.</p>
<p>No sensible treasurer would allow that happen. By doing what’s right, Frydenberg might be giving Bowen an out.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/productivity-commission-finds-super-a-bad-deal-and-yes-it-comes-out-of-wages-109638">Productivity Commission finds super a bad deal. And yes, it comes out of wages</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/114079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A full throated inquiry into superannuation and whether we need more could be the last best thing the Coalition does.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/400692015-04-14T20:22:54Z2015-04-14T20:22:54ZThe Tax white paper - only good for fish and chips now?<p>Achieving tax reform is often a long process as the government of the day looks for consensus before presenting proposals to the Parliament. The process that the current government is following seems to be even longer and more tortuous than most.</p>
<p>It doesn’t help matters when the Treasurer appears to have dismissed a number of suggestions put forward by Treasury just two weeks after the release of the discussion paper. </p>
<p>In his <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=CHAMBER;id=chamber%2Fhansardr%2F135b167f-578d-4414-a5b0-b2a35bc1cc32%2F0238;query=Id%3A%22chamber%2Fhansardr%2F135b167f-578d-4414-a5b0-b2a35bc1cc32%2F0000%22">2013-14 Budget Reply</a> speech incoming prime minister Tony Abbott promised to “consult with the community to produce a comprehensive white paper on tax reform. We’ll finish the job that the Henry review started and this (Labor) government squibbed.”</p>
<p>One would have thought that the <a href="http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">2010 Henry Tax Review</a> - which sought to look forward to the next 40 years - <em>was</em> a comprehensive review of the tax system. </p>
<p>Instead, in the current process Treasury officials have gone back to basics. The long-promised white paper is still to come - the <a href="http://bettertax.gov.au/publications/discussion-paper/">Re:think</a> discussion paper released on 30 March is yet another consultation paper, which sets out a range of questions, but no concrete proposals. </p>
<p>However comments made by Hockey in an interview in the Australian Financial Review this week appears to pre-empt some of the more controversial suggestions in this discussion paper, with AFR columnist Laura Tingle writing that the treasurer “poured cold water” on any significant alteration of dividend imputation, the indexing of income tax thresholds to tackle bracket creep and on changes to the capital gains regime.</p>
<h2>Google and ‘Netflix’ taxes</h2>
<p>The emerging <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporate_Tax_Avoidance/Public_Hearings">evidence</a> from last week’s Senate Hearings in the Inquiry into Corporate Tax Avoidance shows the need for reform of international taxation. Although the Re:think discussion paper does raise the problem, there are no suggestions or specific questions in relation to the issues around international tax avoidance - in fact the thrust of the paper is to seek ways to encourage foreign investment. </p>
<p>Re:think asks the question: </p>
<blockquote>
<p>Q 34. How can tax avoidance practices such as transfer pricing be addressed without imposing an excessive regulatory burden and discouraging investment?</p>
</blockquote>
<p>The treasurer has proposed a “Google tax”, modelled on the <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/385741/Diverted_Profits_Tax.pdf">UK’s diverted profits tax</a>, which was intended to counteract “contrived arrangements that exploit the permanent establishment rules”. However there are serious <a href="https://theconversation.com/experts-caution-australia-on-unilateral-google-tax-39794">concerns</a> as to whether a unilateral approach to the problem will be effective.</p>
<p>The discussion paper raises questions about the GST exemption for imported goods, particularly those ordered on-line. The so-called “Netflix tax” singles out multimedia downloads and is designed to address the situation where video streaming services based in Australia are required to collect GST on videos downloaded here, whereas services based overseas are not required to pay GST as the value is below the import threshold of $1,000. In the virtual world, this is a clear anomaly. The principle behind this move is worthy; but people are already working out how to circumvent the new tax.</p>
<p>Generally, however, broader GST reform will not be proposed unless there is consensus across political parties and the states.</p>
<p>There also seems to be <a href="http://www.skynews.com.au/news/top-stories/2015/03/31/shorten-open-to-top-end-super-changes.html">consensus</a> that the taxation of superannuation does need to be reformed. Even the <a href="http://www.smsfassociation.com/library/submissions/budget-submission-2015.aspx?categoryid=1375#.VSxokfBUrF">superannuation industry</a> <a href="http://www.superannuation.asn.au/media-release-1-april-2015">acknowledges</a> that the concessions are skewed to high income earners, and following the repeal of the <a href="https://theconversation.com/abbott-is-not-playing-fair-removing-super-contribution-will-hurt-working-poor-14604">Low Income Superannuation Contribution</a> (effective from 2017) low income earners effectively pay a higher rate of tax on superannuation than on their take-home pay.</p>
<h2>Capital gains tax</h2>
<p>But there are other issues raised in the discussion paper, particularly in relation to the taxation of investment income, that the treasurer has discounted before stakeholders have even drafted their submissions. </p>
<blockquote>
<p><em>Q 19. To what extent is the rationale for the CGT discount, and the size of the discount, still appropriate?</em> </p>
</blockquote>
<p>The 50% Capital Gains tax discount evolved from the indexation of capital gains that applied when CGT was first introduced. </p>
<p>It is hard to argue that a 50% discount can be justified in the current economic climate, with annual inflation running at less than 3%. Yet this week the Treasurer commented that changing the discount could restrict the flow of capital into start-ups. Although start-up companies are an important area of economic growth, it is only one investment sector.</p>
<h2>Dividend imputation</h2>
<p>The Discussion paper also asked: </p>
<blockquote>
<p><em>20. To what extent does the dividend imputation system impact savings decisions?</em> </p>
</blockquote>
<p>Dividend imputation, like superannuation and negative gearing, has popular support among the “mum and dad” investors in Australia. But there has been a global move away from dividend imputation systems, leaving Australia and NZ as the two remaining regimes. </p>
<p>The Henry Review <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_b2-4.htm">recommended</a> that: </p>
<blockquote>
<p>Dividend imputation should be retained in the short to medium term, but for the longer term, consideration should be given to alternatives as part of a further consideration of company income tax arrangements. </p>
</blockquote>
<p>It has increased investment in Australian companies, whether individually or through superannuation, but it is increasingly anachronistic in the modern economy. However the Treasurer wants submissions to address “how it can be improved” rather than “get rid of it”. </p>
<p><em>21. Do the CGT and negative gearing influence savings and investment decisions, and if so,how?</em> </p>
<p>Again, the paper highlights the interaction between <a href="https://theconversation.com/explainer-why-negative-gearing-is-bad-policy-21882">negative gearing</a> and capital gains tax and suggests a quarantining mechanism to reduce the immediate tax benefit from negative gearing. However, although the Treasurer seemed <a href="http://www.abc.net.au/am/content/2015/s4207069.htm">open to discussions</a> when the paper was released two weeks ago, he told the AFR this week:</p>
<blockquote>
<p>We’ve got to be very careful about constantly adjusting the policy. There is a temptation to constantly adjust policy for the volatility of the times. Now, we are in a world where that is incredibly liquid, where yields are incredibly low. That is creating perverse incentives. </p>
</blockquote>
<p>But there are ways to construct reform that would not have an adverse impact on other investments.</p>
<h2>Bracket creep</h2>
<p>Although the <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">intergenerational report</a> and the discussion paper highlighted that the main source of revenue growth would come from bracket creep, Hockey has flagged that he does not agree with indexation of thresholds. There is some evidence to support this, as the previous experience of indexation of tax thresholds in the early 1980s contributed to inflation as wage demands increased. </p>
<p>However it is also clear that the government does not intend to see an increase in the personal tax rate; and has already said that the <a href="https://www.ato.gov.au/general/new-legislation/in-detail/direct-taxes/income-tax-for-individuals/temporary-budget-repair-levy/">Budget Repair Levy</a> imposed last year on incomes over $180,000 will not be extended beyond the legislated three years. Therefore the formula of the last 30 years, allowing the Government to adjust thresholds periodically, seems set to continue.</p>
<p>So where is the money coming from to reduce the deficit in the current budget? The suggested Bank Deposit Tax is <a href="http://www.abc.net.au/news/2015-04-02/big-banks-warn-federal-government-against-tax-deposits/6366562">opposed </a> by the banks, who will engage in a campaign like that of the miners in relation to the Minerals Rent Resources Tax. Most of the suggestions from Treasury have been excluded by the Treasurer. The Senate has shown that it will not support further reductions in benefits and services that impact on the least well off. Most government agencies will tell you that they have been squeezed dry.</p>
<p>It is time for an action plan in which all of the options are on the table.</p><img src="https://counter.theconversation.com/content/40069/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Hodgson was a member of the WA Legislative Council between 1997 and 2001. She is not currently a member of any political party.</span></em></p>Treasurer Joe Hockey’s media comments this week around contentious tax issues don’t bode well for the Taxation White paper.Helen Hodgson, Associate Professor, Curtin Law School. Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/380502015-03-01T19:28:51Z2015-03-01T19:28:51ZIt’s time to choose what kind of tax system we want<figure><img src="https://images.theconversation.com/files/73373/original/image-20150301-16166-c8qhuf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Australian community has been involved in many discussions about tax in the past, and now it's time for some new decisions.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>Five years ago the <a href="http://www.taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Henry Review</a> undertook a detailed examination of Australia’s tax and transfer system. Today, the <a href="https://taxpolicy.crawford.anu.edu.au/">Tax and Transfer Policy Institute</a> at ANU’s Crawford School has <a href="https://taxpolicy.crawford.anu.edu.au/files/uploads/taxstudies_crawford_anu_edu_au/2015-03/stocktake_report_27_feb_2015_final_web_version.pdf">revisited</a> the Henry Review, as the Australian government prepares to release its tax <a href="http://www.liberal.org.au/latest-news/2013/05/22/joe-hockey-mp-address-national-press-club">white paper</a>.</p>
<p>Tax reform should not be piecemeal, but should be considered across the system as a whole. Australia raises less tax overall than many comparable countries, including Canada and New Zealand. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=472&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=472&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73369/original/image-20150301-16157-12qztlq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=472&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tax as a percentage of GDP: Australia, Canada, New Zealand, OECD average.</span>
<span class="attribution"><span class="source">OECD Revenue Statistics 2014</span></span>
</figcaption>
</figure>
<p>There is scope, and likely the budgetary need, to increase Australia’s tax take. As the <a href="http://www.taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm">Henry Review argued</a>, reform should aim to strengthen tax across all bases - personal and business income, economic rents from resources and land, and private consumption. </p>
<p>The Henry Review reported just as the global financial crisis hit, and five years later economic prospects are <a href="http://www.smh.com.au/business/comment-and-analysis/dont-fix-budget-while-economy-weak-20150215-13es44.html">weak</a> and nominal growth - on which tax revenues depend - is at <a href="http://www.budget.gov.au/2014-15/content/myefo/html/02_part_2.htm">the lowest rate in 50 years</a>. Sustainable economic growth will require a significant kick to workforce participation, productivity and better allocation of investment capital. </p>
<h2>What’s fair</h2>
<p>It’s crucial that we promote fairness in an overall progressive tax-transfer system. We also need to support individuals to flourish in economic activity and work. And we must build resilience of the system to economic, social and technological challenges. </p>
<p>There is widespread public concern about income and wealth inequality, in <a href="http://www.australia21.org.au/publication-archive/advance-australia-fair-what-to-do-about-growing-inequality-in-australia/#.VO_m5S7dV8E">community studies</a> and <a href="http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCUQFjAB&url=http%3A%2F%2Fwww.melbourneinstitute.com%2Fdownloads%2Fworking_paper_series%2Fwp2013n26.pdf&ei=HefvVPHpMcrg8AXK0ID4CA&usg=AFQjCNH3HUa0ZBVyGaGSFepbwWXKXKioCQ&bvm=bv.87269000,d.dGc&cad=rja">academic research</a>. Income inequality is rising in Australia even after the impact of taxes and transfers.</p>
<h2>Personal income tax - still crucial</h2>
<p>The progressive personal income tax is key to addressing inequality and is our biggest revenue raiser - as shown <a href="http://www.treasury.gov.au/Policy-Topics/Taxation/Pocket-Guide-to-the-Australian-Tax-System/Pocket-Guide-to-the-Australian-Tax-System/Part-2">below</a>. If we want to lower effective marginal tax rates to deal with bracket creep and build workforce participation by women, low earners and mature workers, we will need to broaden the base.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=282&fit=crop&dpr=1 600w, https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=282&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=282&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=354&fit=crop&dpr=1 754w, https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=354&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/73366/original/image-20150301-16188-gvou0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=354&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Taxes levied by Commonwealth Government 2012-13.</span>
<span class="attribution"><a class="source" href="http://www.treasury.gov.au/Policy-Topics/Taxation/Pocket-Guide-to-the-Australian-Tax-System/Pocket-Guide-to-the-Australian-Tax-System/Part-2">Commonwealth Treasury</a></span>
</figcaption>
</figure>
<p>As the <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_a1-3.htm">Henry Review argued</a>, a 40% savings income discount for net capital gains and net income from savings - after expenses are deducted - would reduce rental losses produced by negative gearing, be fairer and provide a more coherent approach to different kinds of savings, including bank accounts. </p>
<p><a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics-2011-12/?page=8#Table4">More than 70%</a> of individuals use tax agents - a far higher percentage than most comparable countries - and only 20% file themselves electronically. An individual e-tax account is surely the way of the future, and if we reduce different treatment of expenses and investments and other planning margins, compliance will be easier.</p>
<p>Tax reform must build on the system we already have. It is fairest to treat super contributions like other remuneration from work - taxed at marginal rates - with a tax credit for contributions of low to moderate income earners. Earnings are concessionally taxed to encourage saving. Keeping exempt payouts would provide transitional fairness for those who have been saving for the last decade or more. </p>
<p>We could tax capital gains on the home over a high threshold - and the same could be done for super payouts. And we could <a href="http://www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/dmd/menu-eng.html">tax capital gains on death</a> as Canada does. But it’s important to learn from empirical studies, such as a recent study by the <a href="http://webarchive.nationalarchives.gov.uk/20140109143644/http://www.hmrc.gov.uk/budget2012/excheq-income-tax-2042.htm">UK Revenue </a> of a tax rate change, that such taxes will likely change behaviour and may not raise much revenue. That could be a good thing, dampening excessive speculative investment in these assets.</p>
<p>The income tax exemption for the home should likely be retained - but we should be taxing those who have a home more <a href="http://www.taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_e4-3.htm">comprehensively with a land tax</a> - while removing duties, helping housing affordability. Such a change is <a href="http://apps.treasury.act.gov.au/taxreform">underway</a> in the Australian Capital Territory and has been <a href="http://yoursay.sa.gov.au/yoursay/tax-review-in-south-australia">proposed</a> in South Australia. </p>
<h2>The company tax falls on people</h2>
<p>Australia’s company tax collects significant revenue, ensures that foreign investors pay some tax and collects on economic rents from resources and other profitable business activity. It is also a backstop to personal income tax. </p>
<p>But the company tax is borne by real people and <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2014/Economic-Roundup-Issue-1">economic modelling by Treasury </a>suggests it may be increasingly borne by Australian workers and consumers, not by capital. It’s also increasingly vulnerable to the <a href="http://www.oecd.org/ctp/discussion-draft-action-1-tax-challenges-digital-economy.htm">digital global economy</a> and international tax avoidance. Enforcement costs are increasing. Global cooperation will help but poses many challenges. </p>
<p>Rather than <a href="http://www.abc.net.au/news/2014-07-27/cut-the-company-tax-rate-promise-check/5429954">a tax cut to 28.5% for all but the largest companies</a>, we need an honest debate about the future of company tax. The imputation system that produces franked dividends beloved of Australian investors <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_b2-3.htm">has benefits but also complexities</a>, and creates an obstacle for Australian companies investing overseas.</p>
<h2>GST and State taxes critical for prosperity and revenue</h2>
<p>Tax reform for the States is essential for any viable reform of the federation, another white paper <a href="https://federation.dpmc.gov.au/">currently underway</a>. The GST, which goes entirely to the States on a controversial <a href="http://www.gstdistributionreview.gov.au/content/Content.aspx?doc=reports/interimmarch2012/Chapter1.htm">equalised</a>) basis, is Australia’s only broad-based tax on consumption. But it taxes less than half our consumption and raises only 13% of revenues, while the rate is lower than many comparable countries. </p>
<p>A broader payroll tax - not <a href="http://taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/section_10-03.htm">weakened in response to business lobbying</a> and interstate competition - would fund the public goods and services that States provide. </p>
<p>These reforms could deliver real gains for State economies, but they need the States to gain trust of voters - and the <a href="http://www.budget.nsw.gov.au/__data/assets/word_doc/0004/.../Ch_7.docx">Commonwealth to build trust in States</a>. Transition to better State taxes must be supported by the Commonwealth government.</p>
<p>As Helen Hodgson highlighted last week, <a href="https://theconversation.com/tax-reform-can-we-all-win-37847">no one wants to be a loser</a>. Tax reform can support prosperity, fairness and system resilience but it requires transition that will cause some pain. A broad conversation that looks to the long term national benefit is needed. Since federation, the Australian community has made broad choices about government expenditures, redistribution and taxes. I'ts time to do it again.</p><img src="https://counter.theconversation.com/content/38050/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Stewart receives funding from the Victorian Government, Academy of Social Sciences Australia and Australian Research Council.</span></em></p>Five years on from the Henry Tax Review tax reform is upon us again, and this time Australia must plan for the future.Miranda Stewart, Professor and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/378472015-02-25T19:32:04Z2015-02-25T19:32:04ZTax reform - can we ALL win?<figure><img src="https://images.theconversation.com/files/73013/original/image-20150225-1758-5gn3fy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Can everyone be a winner from comprehensive tax reform? </span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>Tax reform is a political process based on negotiation and compromise. </p>
<p>During the 2013 election campaign the Abbott Government promised a White Paper on Tax Reform. Release of the draft paper has been delayed well past the original proposed publication date of late 2014, jeopardising the opportunity for an informed debate before the next election, due in late 2016.</p>
<p>Effective tax reform depends on finding a cohesive package that is politically acceptable: no one wants to be a “loser”. The most significant reforms of the last 25 years took place after key stakeholders entered into a dialogue: the 1985 Tax Summit resulted in a range of measures to broaden the income tax base and reduce income tax rates; in 1996 ACOSS and ACCI opened a dialogue about tax reform at a National Tax Reform Summit. The current form of the GST is a product of negotiation between stakeholders.</p>
<h2>What are the issues?</h2>
<p>Treasury has <a href="http://www.treasury.gov.au/PublicationsAndMedia/Speeches/2014/Martin-Parkinson-20140911">identified</a> the key issues in the current reform round as: </p>
<ul>
<li><p>The tax mix: currently about half of the tax revenue is from personal income tax</p></li>
<li><p>An internationally competitive corporate system that encourages investment</p></li>
<li><p>The effect of high effective marginal tax rates on productivity</p></li>
<li><p>The federal framework, which is the subject of a parallel white paper process.</p></li>
</ul>
<p>Other stakeholders agree that these are the challenges, but disagree on priorities. The issues to watch include:</p>
<ul>
<li><p>GST: The <a href="http://www.cpaaustralia.com.au/professional-resources/taxation">two options</a> on the table are: increase the rate or increase the base to include education, health and/or food, with targeted compensation. </p></li>
<li><p>Transfer payments: Tax and transfer payments are linked: income tax cuts compensate taxpayers but people not paying tax need to be compensated through the transfer system. </p></li>
<li><p>Business tax cuts: The Business Council of Australia <a href="http://www.bca.com.au/Content/102212.aspx">argues </a> that the Australian corporate tax rate should be reduced to improve competitiveness. Reductions in the tax paid by companies will have most impact on cross-border investment due to the imputation system.</p></li>
<li><p>Corporate tax avoidance: Base Erosion and Profit Shifting <a href="http://www.treasury.gov.au/%7E/media/Treasury/Publications%20and%20Media/Publications/2013/Aus%20Corporate%20Tax%20Base%20Sustainability/Downloads/PDF/BEPSscoping_paper.ashx">(BEPS)</a> has been prominent in the discussion around international tax reform; but it will not be easy to address unilaterally.</p></li>
<li><p>Reform of trust taxation: <a href="http://acoss.org.au/media/release/clamp-down_on_trusts_and_other_tax_shelters_could_raise_2.5_billion_per_yea">ACOSS</a> and <a href="http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2012/modernising-taxation">Treasury</a> both acknowledge that the taxation of trusts needs to be reformed, although the scope of the proposals is very different. Some technical reform in this area is essential.</p></li>
<li><p>Tax on investments: The recommendations of the <a href="http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/final_report_part_1/chapter_12.htm">Henry Tax Review</a> included changes in respect of the taxation of investments to reduce the different tax rate paid on different investments. These recommendations have not been acted on. </p></li>
<li><p>Negative gearing: In particular there is an asymmetry between <a href="http://theconversation.com/explainer-why-negative-gearing-is-bad-policy-21882">negative gearing</a> and capital gains tax that sees a full, immediate deduction for interest expenses on income earning investments while only 50% of any capital gains are taxed when the investment is sold.</p></li>
<li><p>Superannuation: Savings in superannuation are taxed at the concessional rate of 15%. Since 2007 superannuation pensions received by retirees have also been tax exempt. Although it is argued that this will be offset by reductions in the Age Pension payable, there are <a href="http://www.tai.org.au/content/sustaining-us-all-retirement">concerns</a> that this form of savings is excessively generous to high income earners, and unsustainable.</p></li>
</ul>
<p>Even if stakeholders agree that we need reform, they do not always agree on the shape of that reform: for example, when looking for an equitable increase in the GST, CPA Australia recommends that the GST be applied to food, health and education with compensation to low income households, while the Australia Institute suggests that the GST should be imposed on private health and education as these services are used more by higher income households.</p>
<h2>The politics of tax reform</h2>
<p>Part of the problem is that tax reform is more likely to be accepted when it is revenue neutral and the Government is seen to be giving back as much as it is taking. The 1985 and 1999 tax reform packages were in a climate where economic conditions supported tax cuts: in 1985 personal marginal tax rates were being cut around the world and in 1999 Australia was in an economic boom. Even the Henry Review was commenced before the GFC hit.</p>
<p>This tax reform debate will be held against a backdrop of budget deficits, a non-compliant Senate and lower rates of economic growth. The government argues that we need to reduce spending to address the forthcoming challenges, but the <a href="http://www.aigroup.com.au/portal/site/aig/template.MAXIMIZE/mediacentre/releases/?javax.portlet.tpst=576c3f2a4adc0f512aec2f100141a0a0_ws_MX&javax.portlet.prp_576c3f2a4adc0f512aec2f100141a0a0=index%3D7%26docName%3DAi%2BGroup%2527s%2BSubmission%2Bto%2Bthe%2BFederal%2BBudget%2B2015-16%26folderPath%3D%252FLIVE_CONTENT%252FMedia%2BReleases%252F2015%252FFebruary%252F%26viewID%3Dcontent&javax.portlet.begCacheTok=com.vignette.cachetoken&javax.portlet.endCacheTok=com.vignette.cachetoken">Australian Industry Group</a> argues that a tax cut in the forthcoming budget would stimulate the economy. </p>
<p>The Treasurer has <a href="http://www.joehockey.com/media/speeches/details.aspx?s=155">indicated</a> that tax cuts are unlikely, and that the forthcoming intergenerational report will make Australians “<a href="http://www.joehockey.com/media/transcripts/details.aspx?s=707">fall off their chairs</a>” as the declining participation rate will result in lower revenues while government expenditure increases. </p>
<p>In this environment it will be difficult to craft a tax reform package that is seen as fair: any reforms could easily be portrayed as a tax grab. In particular, moves to scale back negative gearing or superannuation concessions will be very hard to sell to an ageing electorate.</p>
<p>Tax reform is notoriously difficult to achieve. As Dr Ken Henry <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/speeches/10.htm">said</a> in 2009 before handing down the report of his review into Australia’s tax system:</p>
<blockquote>
<p>Successful tax reform is not just about increasing GDP or revenue, or making the system easier to understand, or more sustainable, or fairer, or better able to assist governments to address various social problems. It is concerned with all of these things. Successful tax reform means improving the wellbeing of the Australian people.</p>
</blockquote><img src="https://counter.theconversation.com/content/37847/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Helen Hodgson was a member of the WA Legislative Council between 1997 and 2001. She is not currently affiliated with any political party.</span></em></p>Just what are the issues we need to watch when it comes to tax reform? Read this explainer.Helen Hodgson, Associate Professor, Curtin Law School. Curtin Business School, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/377462015-02-18T19:07:01Z2015-02-18T19:07:01ZAustralia is not a country of rorters: our tax system is sound<figure><img src="https://images.theconversation.com/files/72321/original/image-20150218-19496-1lj4wfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite claims, there isn't a systemic problem with tax evasion by Australian companies.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>The Henry Tax Review identified 125 taxes within Australia levied by all levels of government. Of those 125 taxes, <a href="http://taxreview.treasury.gov.au/content/content.aspx?doc=html/Publications/Fact%20Sheets/Overview_Tax_Transfer_System.htm">just 10 taxes raised 90% of all tax revenue.</a> The company tax is the second largest source of revenue to the Commonwealth. This consideration immediately suggests two points:</p>
<ul>
<li><p>The Australian company tax is a successful tax in that it generates substantial revenue.</p></li>
<li><p>The integrity of the company tax is particularly important for public finance purposes.</p></li>
</ul>
<p>Yet the public debate seems to suggest that the integrity of the Australian company tax system is compromised. Late last year the Tax Justice Network Australia <a href="http://taxjustice.org.au/reports/">released a report</a> that suggested widespread tax avoidance, if not outright tax evasion. In particular, it claimed:</p>
<ul>
<li><p>The average effective tax rate of the ASX 200 was 23%, and</p></li>
<li><p>If the ASX 200 were paying tax at the statutory rate an additional A$8.4 billion could be raised in company tax revenue.</p></li>
</ul>
<p>While these claims were <a href="http://www.smh.com.au/business/the-economy/asx-200-company-tax-avoidance-bleeds-commonwealth-coffers-of-billions-a-year-report-finds-20140928-10n3n3.html">well received</a> in parts of the Fairfax press and the Australian Broadcasting Corporation, Australian Treasury officials testifying at Senate Estimates were nonplussed. Referring to the 23% average effective tax rate, <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=COMMITTEES;id=committees%2Festimate%2F1d76a5bd-dc72-4f6d-b4d2-6815c9e77ffc%2F0008;query=Id%3A%22committees%2Festimate%2F1d76a5bd-dc72-4f6d-b4d2-6815c9e77ffc%2F0000%22">Rob Heferen, executive director of the Treasury Revenue Group, told the Senate</a>, “I must confess I was surprised it was so high”. That comment in turn suggests two things; first deviations between average effective tax rates and the statutory rate are not unusual and, more importantly, it is very unlikely that $8.4 billion could be raised by increased compliance activity.</p>
<p>In short, there is no fiscal free lunch. If government wants to raise more revenue in taxation, it is going to have raise taxes.</p>
<p>When thinking about Australian company tax, the first thing to understand is that financial accounting is very different from tax accounting. The former communicates information to shareholders while the latter communicates information to taxation authorities. There is far more leeway in how firms communicate to shareholders than there is to the tax authorities. As such we expect to see differences between effective tax rates calculated from information contained in annual financial statements and the statutory company tax rate. That difference can be calculated from the ATO Tax Statistics.</p>
<p>In the academic literature that difference is referred to as “the book-tax income gap” and has been extensively studied by academics. Alfred Tran <a href="http://www.researchgate.net/profile/Alfred_Tran/publication/268524337_Causes_of_the_Book-Tax_Income_Gap/links/547011220cf24af340c097d9.pdf">summarises</a> the book–tax income gap (emphasis added):</p>
<blockquote>
<p>The major causes of the book-tax income gap are attributable to deliberate government policies and different objectives of the tax and the financial reporting systems. Tax incentives, dividend rebates, concessional treatment of capital gains, and non-deductibles are all the results of government policy decisions. There are good economic, political, and administrative reasons for these policies.</p>
</blockquote>
<p>In short – not only does the ATO know about the book – tax income gap, it is a direct result of deliberate government action.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=329&fit=crop&dpr=1 600w, https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=329&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=329&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=413&fit=crop&dpr=1 754w, https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=413&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/72307/original/image-20150218-19453-1ixr7v4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=413&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Source: ATO Taxation Statistics, Author calculations</span></span>
</figcaption>
</figure>
<p>So the mere existence of a book–tax income gap doesn’t necessarily mean there is widespread tax avoidance. On the other hand just because we can explain the gap doesn’t mean that some firms aren’t avoiding company tax either.</p>
<p>There is an argument that suggests that large companies are more likely to avoid taxation than are small companies – that was the clear implication of the Tax Justice Australia report. <a href="https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0CD4QFjAG&url=http%3A%2F%2Fwww.researchgate.net%2Fprofile%2FAlfred_Tran%2Fpublication%2F268524251_Effective_Tax_Rates_of_Corporate_Australia_and_the_Book-Tax_Income_Gap%2Flinks%2F54700d8b0cf24af340c097b3.pdf&ei=nQ_jVKOhH6LFmwWgMw&usg=AFQjCNFXGG080GPvmag-qFAjACAYYy3Mmg">Alfred Tran and Richard Yu suggest</a> that large firms can afford better tax planning activities: that is, engage in aggressive tax minimisation and are better able to “influence political processes in their favour”. Grant Richardson and Roman Lanis (<a>2007</a>, <a href="https://www.researchgate.net/publication/222416872_Determinants_of_the_variability_in_corporate_effective_tax_rates_and_tax_reform_Evidence_from_Australia">2008</a>) are predisposed to the latter view pointing to a “political power hypothesis” that suggests an inverse relationship between firm size and effective tax rates.</p>
<p>By contrast in <a href="https://www.researchgate.net/publication/265651221_Effective_tax_rates_and_the_Political_Cost_hypothesis_A_re-evaluation_of_Australian_evidence">joint research</a> with Richard Heaney of the University of Western Australia, I find evidence of a “political cost hypothesis” – the notion that larger firms would be subject to greater scrutiny from the taxation authorities leading to higher effective rates of taxation. Heaney and I conclude:</p>
<blockquote>
<p>Claims that larger firms are paying substantially less than the headline rates of taxation or even less than smaller firms should be viewed with some caution. This in turn suggests that policy efforts to increase revenue from the corporate tax by closing the book-tax income gap are less likely to be successful. In other words, increased enforcement of existing tax laws is less likely to raise revenue relative to policies that reform the tax base or change the tax rate.</p>
</blockquote>
<p>So the very companies that more likely to be in a position to engage is tax avoidance attract the attention of the tax authorities and are so unable to avoid much tax at all. That should provide some confidence that large companies are not engaged in widespread tax avoidance.</p>
<p>This still does leave unanswered the question as to whether multinational companies are able to pay less tax than purely domestic firms. Kevin Markle and Douglas Shackelford <a>explicitly investigate this question</a>. They employ data for 11,602 companies over the period 1988 – 2009 across 82 countries (including Australia) to investigate the impact of domicile on company effective tax rates. </p>
<p>After controlling for country, industry, and firm effects, they report that multinationals and domestic-only firms face similar effective tax rates. In the case of Australia, they report, everything else being equal, domestic-only effective company tax rates and multinational corporation effective company tax rates vary by 1% and that difference is not statistically significantly different from zero.</p>
<p>All up, the integrity of the Australian company tax system is sound. That isn’t to say that there aren’t some companies that cut corners and evade tax when they should be paying tax, but there is precious little evidence of systematic rorting of the company tax system. That reflects well on the efforts of the ATO who police the system - but it does make life difficult for politicians hoping for quick and easy fixes to the budget deficit.</p><img src="https://counter.theconversation.com/content/37746/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Disclosure: Sinclair Davidson is Professor of Institutional Economics at RMIT University and a honorary senior research fellow at the Institute of Public Affairs. His research into company taxation was financed by the Australian Research Council. This article is based on a submission to the Senate Inquiry into Corporate Tax Avoidance.</span></em></p>The Henry Tax Review identified 125 taxes within Australia levied by all levels of government. Of those 125 taxes, just 10 taxes raised 90% of all tax revenue. The company tax is the second largest source…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/360182015-01-08T19:25:24Z2015-01-08T19:25:24ZHow’s this for fundamental tax reform? Target the rentseekers<p>Tax is back in the spotlight with <a href="http://www.afr.com/p/national/left_pushes_gst_for_schools_health_8ekVm2c27woPgD4ipgSXLJ">coalition MPs and the Australia Institute</a> talking about getting rid of some of the exemptions to the GST. There has also been a lot of talk about whether or not corporate Australia is paying their <a href="http://www.theguardian.com/business/2014/nov/06/luxembourg-tax-files-the-australian-companies-engaged-in-tax-avoidance?CMP=ema_632">fair share of tax</a>. Many big companies, including Apple and Google have been in the firing line because of the small amount of tax they pay on their Australian earnings. Some suggest that our corporate tax rate is too high and this creates a strong incentive for multinationals to shift taxable income to other countries.</p>
<p>Lowering our corporate tax rate and shifting to taxes that target economic rent could help resolve structural problems with our tax system, create a more productive economy and reduce incentives for corporate tax dodging. Such a tax shift could be designed to be revenue neutral or to increase overall tax take.</p>
<p>Even for many economists, economic rent is a slippery term that’s difficult to grasp. Economic rent is unearned income. This means that it has no clearly associated cost of production.</p>
<p>Unearned income can be obtained in many different ways but is almost always derived from privileged access to something scarce. The market power that monopolies can employ to raise prices generates economic rent. A rise in land values beyond inflation generates economic rent for the owner (the “earned” income from real estate is the actual rent or value derived from the use of the land). Unearned income also comes from artificial scarcity created by government policy. Taxi licenses and poker machine licenses are clear examples.</p>
<p>When a communication company uses a part of the electromagnetic spectrum for profit making, nobody else can use that wavelength. The auctioning of electromagnetic spectrum is an effective type of economic rent tax. The spectrum gets put to efficient use and the public is compensated for giving up a shared resource. The company then profits according to how well they use the resource rather than simply because they have a monopoly over it. There is bipartisan support for the auctioning of electromagnetic spectrum but the principle can be applied much more broadly.</p>
<p>The same logic sits behind mineral resource rent taxes - such as the first incarnation of the now-abolished mining tax. When the international price of a resource goes up, those who own the resource (every Australian) receive little benefit. The benefit goes to the mining companies even though they have done nothing to facilitate those price rises and they don’t own the material whose price has risen. This is unearned income and could be taxed in order to return the income flows to the public.</p>
<p>Most businesses in Australia would greatly benefit from a tax shift to economic rents with a commensurate reduction in company tax and the abolition of inefficient taxes such as stamp duties and insurance taxes.</p>
<p>Vast sums of money that are currently directed towards rent seeking would be redirected into productive activity, generating employment and diversifying the economy. Boom and bust property cycles would be flattened due to reduced speculation and, as a result, the broader scale ups and downs of the business cycle would be somewhat moderated.</p>
<p>While the 2010 Henry Tax Review recommended many rent-based taxes (including land tax, gambling taxes and a resource rent tax) as well as taxing environmental degradation, very few of the recommendations were endorsed, let alone implemented. The most significant of the recommendations that were implemented (even if somewhat half-heartedly), the carbon tax and the mining tax, have recently been repealed, primarily due to the inevitable backlash of the rent-seekers.</p>
<p>The political hurdles to serious tax reform are very high. However, the consequences of not reforming the tax system are severe. Tax reform policies are easy prey for opportunistic political opponents. This is why we need some clear principles for tax reform that are clearly explained to the public.</p>
<p>Liberal politicians should favour shifting taxes off productive business and onto economic rents and the exploitation of shared resources because such reforms target market failure and free up productive and sustainable businesses to flourish. Labor politicians too should approve of these principles because they reduce taxes on labour and shift them onto the rent seekers who contribute little to society. The inherently progressive nature of most rent taxes should also appeal to The Greens, the Labor left and the increasing number of others concerned about economic inequality.</p>
<p>Our politicians will need courage to stand up to powerful individuals and groups who have an interest in maintaining the status quo. They can get that courage from the rest of us who stand to benefit from a taxation system that supports a more productive and sustainable economy.</p><img src="https://counter.theconversation.com/content/36018/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warwick Smith does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Tax is back in the spotlight with coalition MPs and the Australia Institute talking about getting rid of some of the exemptions to the GST. There has also been a lot of talk about whether or not corporate…Warwick Smith, Research economist, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/222902014-01-28T19:47:38Z2014-01-28T19:47:38ZTax reform is hard…so it’s time for an independent tax board<figure><img src="https://images.theconversation.com/files/39974/original/tp2kbqq6-1390882032.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An independent tax board might have taken some of the politics out of the Rudd government's mining tax plan.</span> <span class="attribution"><span class="source">Josh Jerga/AAP</span></span></figcaption></figure><p>The federal government’s <a href="http://www.ncoa.gov.au/docs/NCA_TERMS_OF_REFERENCE.pdf">Commission of Audit</a> - tasked with finding efficiency and productivity improvements to deliver a surplus of 1% of GDP prior to 2023-24 - remains overshadowed by the many reviews that have come before it, specifically those related to taxation reform.</p>
<p>There certainly isn’t anything wrong with conducting an audit but it’s a big ask that the Commission deliver a surplus for the government, particularly given economists such as <a href="http://www.youtube.com/watch?v=ppEgyxRiuMY">Ken Henry</a> and organisations like <a href="http://grattan.edu.au/publications/reports/post/balancing-budgets-tough-choices-we-need/">the Grattan Institute</a> and <a href="http://www.pwc.com.au/tax/assets/Protecting-prosperity-22Jul13.pdf">PwC</a> have pointed out Australia’s tax and transfer system has fundamental structural problems. In the absence of substantial tax reform, it will become increasingly difficult for federal governments to balance their budgets.</p>
<blockquote>
<p>“Just in order to address the budgetary impacts of an ageing population … we’re going to have to find another five percentage points of GDP in the form of government revenue.”
<a href="http://www.youtube.com/watch?v=kJwEEx0Hen8">Ken Henry</a></p>
</blockquote>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/39973/original/r424k9yb-1390881243.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Just a handful of the 138 Henry Tax Review recommendations have been implemented.</span>
<span class="attribution"><span class="source">Alan Porritt/AAP</span></span>
</figcaption>
</figure>
<p><a href="http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Australia’s Future Tax System</a>, often referred to as the Henry Tax Review, was generally applauded by economists and economics commentators. The report contained 138 recommendations. Since the review was completed in 2009, just a handful of these have been implemented and most of those have only been partially implemented.</p>
<p>Such is the power of vested interests and the fear of opposition scare campaigns that meaningful tax reform is becoming increasingly difficult. Many have argued that the era of serious policy reform is <a href="http://www.quarterlyessay.com/issue/trivial-pursuit-leadership-and-end-reform-era">over</a>. This may explain why an audit is seen as the main path to a budget surplus.</p>
<p>Imagine if, instead of being tasked with a tax review, the team headed by Ken Henry had been tasked with implementing a tax and transfer system. I don’t agree with every recommendation made by the Henry Review but if all were implemented I have no doubt our economy would be on a much more stable and sustainable footing. I doubt you’d find many economists who would disagree.</p>
<h2>A Reserve Bank board for tax</h2>
<p>I would like to float the idea of an Independent Taxation Board, something like the Reserve Bank board, which could be charged with actually enacting taxes and raising revenue. The government of the day could submit its policy priorities and desired revenue to the board and it would determine the most effective and efficient tax mix and rates for raising the desired revenue and meeting the stated social goals (while maintaining a relatively stable tax regime after the initial reform process).</p>
<p>If the actual raising of tax was left to technocrats, and the government was forced to be transparent about the goals it wanted achieved through the tax and transfer system, it would be very difficult to serve vested interests who have captured the government of the day. It would also be more difficult for governments to use deficits as excuses for cutting programs they don’t like - instead they would have to actually explain why they really want to cut them.</p>
<p>Under this scenario there would be no point in the mining industry spending tens of millions of dollars on an advertising scare campaign to derail tax reform because the Independent Taxation Board’s decisions would not be subject to parliamentary review.</p>
<p>Many potential pitfalls would need to be considered and avoided if this idea was to be implemented but none I have thought of so far is a deal breaker when contrasted with the current inefficient taxation system and the barriers put up against every serious reform proposal.</p>
<h2>Scary stuff</h2>
<p>I’m sure some would argue that the base and the rate of every tax should be subject to democratic scrutiny. However, as I’ve commented <a href="http://theconversation.com/bca-wants-your-home-taxed-and-its-actually-a-good-idea-16630">elsewhere</a>, taxation economics is complex and very vulnerable to scare campaigns.</p>
<p>Tony Abbott’s scare campaign about the carbon tax putting a wrecking ball through our economy is a great example, as was the Labor opposition’s scare campaign about the introduction of the GST and the Coalition and mining company campaigns against the various mining tax proposals. </p>
<p>In every case mentioned above the opponents of reform were making statements which, to a tax economist, were obviously false or grossly exaggerated. However, the average person on the street doesn’t know much about tax economics and, for the most part, doesn’t want to know (believe me, my knowledge of tax economics is no asset at a party).</p>
<p>All of the above reasons make me think that democratic scrutiny of the details of the tax system is not necessarily desirable. But scrutiny and transparency of the principles used to derive the tax system is altogether warranted and desirable. At the moment, we have the former and not the latter.</p>
<p>In the absence of clear statements from the government requesting tax reform to be skewed to favour the wealthy, an independent board would surely make our tax and transfer system more progressive as well as making it more efficient and stable.</p>
<p>Would that be a bad thing?</p>
<p>Of course, the Catch 22 here is that the Independent Taxation Board represents a radical reform. How would it be implemented in this seemingly post-reform era?</p><img src="https://counter.theconversation.com/content/22290/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Warwick Smith does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The federal government’s Commission of Audit - tasked with finding efficiency and productivity improvements to deliver a surplus of 1% of GDP prior to 2023-24 - remains overshadowed by the many reviews…Warwick Smith, Postdoctoral research fellow in Environmental Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/176972013-09-08T20:35:12Z2013-09-08T20:35:12ZHome equity: Australia’s growing wealth divide<figure><img src="https://images.theconversation.com/files/30650/original/28995xyr-1378258446.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C1000%2C667&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The proportion of renters is now roughly equal to the numbers of outright home owners.</span> <span class="attribution"><span class="source">Image from www.shutterstock.com</span></span></figcaption></figure><p>For all our talk about housing affordability, few people want house prices to drop. That’s because most Australians are home owners, and much of our wealth is stored in housing.</p>
<p>But recent figures released by the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/4130.0">Australian Bureau of Statistics (ABS) </a> suggest a growing divide between those enjoying the financial benefits of home ownership, and those who may never be able to afford it.</p>
<p>Overall home ownership rates slipped from 69% to 67% between 2011-2012, signifying real change in Australia’s housing system. Age-specific home ownership rates have seen much sharper falls. </p>
<p>Since the Survey of Income and Housing began in 1995, home ownership rates have hovered between 71%-69%, although the proportion of home purchasers (people with mortgages) began to exceed outright home owners in 2004.</p>
<p>By this time Australia’s long housing boom (between 1996-2005) had begun to play out. Younger generations took longer to enter home ownership and needed to take on larger mortgages. As housing equity grew with the rising market, established households tapped into their home loans to finance other purchases, again meaning longer and bigger loans.</p>
<p>While some speculated that Gen Ys were avoiding the responsibilities and commitment of home ownership by choice, a <a href="http://www.coop.com.au/media/white-paper-august-2013.pdf">recent survey</a> of Australian university students reveals that home ownership remains an overriding aspiration for younger people. However, affordability (saving a deposit and meeting repayments) is a major concern for these students. Despite relatively bright employment prospects they fear they may never be mortgage free.</p>
<h2>Housing and wealth</h2>
<p>Home owners are vastly more wealthy than renters. The <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6523.0Main%20Features22011-12?opendocument&tabname=Summary&prodno=6523.0&issue=2011-12&num=&view=">latest ABS figures show </a>that the net worth of renter households was on average only about 13% of that enjoyed by owners with no mortgage, and about a fifth of the net worth of home purchasers. </p>
<p>Housing equity through ownership has provided an important nest egg for older Australians, with baby boomers the main winners in the housing market. Not only did they buy when prices were far more affordable, but family homes barely affect eligibility for the aged pension. If some retirees might over-invest in their castle, others are using super to pay off their home loan.</p>
<p>But although older Australians generally live in their own homes, home ownership among the over-55s has fallen too. This reflects changing household circumstances. Divorce is one of the flashpoints for falling out of home ownership, especially for women, and many are unable to climb back on the ladder. Older, lone person households are more likely to be in private rental than couples, and their financial future seems grim.</p>
<p>Falling rates of home ownership point to a looming problem. Government expenditure on older people, particularly the relatively low rate for the aged pension, depends on minimal housing costs and the capacity for co-payment (for care) by accessing home equity when the time comes. If older people retire with mortgage debt, and worse, without housing equity, ongoing government obligations for income and housing related payments will rise sharply.</p>
<h2>More renters, less equity</h2>
<p>The new data shows that while renting was once considered a transitional tenure, the proportion of renters is now roughly equal to the numbers of outright home owners (30.9%), down from nearly 42% in 1995. The proportion of households renting from a private landlord has grown from 18% in 1994-95 to 25% in 2011-12.</p>
<p>Households in public or social housing has fallen from 5.5% to 3.9% over the same period, exacerbating the shortage of affordable homes. Rather than investing in new social housing construction, government housing assistance has shifted to rental subsidy to help low-income earners afford rents in the private market.</p>
<p>Government subsidies for home ownership (largely through <a href="http://www.bsl.org.au/pdfs/Yates_tax_expenditure_and_housing_2009.pdf">preferential tax treatment</a>) amount to around $8,000 per household per year, but renters get only around $1,000 per year. Support for property investment equates to an additional $4,000. All up, that means in excess of <a href="http://www.rba.gov.au/publications/confs/2011/yates.html">$45 billion</a> for home ownership compared to around $8 billion for renting, including concessions for private landlords through negative gearing.</p>
<p>There’s a generational aspect here too – renters and younger home purchasers get much less than older, higher-income home owners without mortgages.</p>
<p>Worse, as the Henry Tax review highlighted, many of these incentives for property investment push up house prices, further disadvantaging aspiring first home owners.</p>
<p>In 2009/10 only 5.2% of houses sold were affordable to those on lower incomes, and 60% of low-income private renters were in housing stress (when housing costs exceed 30% of income). Overall homelessness has grown 17.3% since 2006, with more than 105,200 Australians sleeping rough, couchsurfing, in crisis or temporary accommodation in 2011.</p>
<h2>A fairer housing system</h2>
<p>In election season, it’s disappointing to see that housing hasn’t really made it on the radar. What can be done to make things fairer?</p>
<p>It’s time to consider real changes to benefit the growing numbers of renters in Australia. The major differences between living in your own home and renting, relate to tenure security and wealth. <a href="http://www.shelter.org.au/index.php?option=com_docman&view=docman&Itemid=487">Reforms to tenancy laws</a> in each state might improve security for private tenants, making rental housing more a choice than necessity.</p>
<p>The <a href="http://taxreview.treasury.gov.au/content/finalreport.aspx?doc=html/publications/papers/final_report_part_1/chapter_12.htm">Henry Tax Review recommended</a> a number of changes to housing and related taxes, including negative gearing, capital gains and land tax and stamp duties. The review also recommended extending the Commonwealth’s rent assistance scheme for lower-income households, while warning that initiatives to increase the supply of housing affordable for low and moderate-income earners are needed.</p>
<p>We’re still waiting for the tax reforms, so what about affordable housing supply? Demand for housing is concentrated in established, inner-city locations accessible to transport and jobs; where supply is inherently constrained. So, just increasing the overall number of new houses produced in Australia won’t fix affordability problems for those currently locked out of home ownership.</p>
<p>Specific strategies to target the production of housing affordable for these groups are needed.</p>
<p>The federally funded <a href="http://www.fahcsia.gov.au/our-responsibilities/housing-support/programs-services/national-rental-affordability-scheme">National Rental Housing Affordability Scheme </a>(NRAS) is worth keeping. It provides tax credits (worth $100,000 per dwelling) to investors or community organisations who build and rent dwellings for low and moderate-income earners, at 20% below market rates.</p>
<p>South Australia, WA and the ACT have all introduced programs to increase the supply of affordable homes for purchase, combining planning requirements and incentives, and in some cases, government land or equity sharing.</p>
<h2>Design initiatives</h2>
<p>Ingenious design may also help. With smaller households and more people preferring to live in inner-city areas near transport, jobs and services, some designers are experimenting with smaller, cost-effective and high-density housing prototypes.</p>
<p>Cash strapped, tech happy Gen Y’s keen to stay in the hood will like the new <a href="http://yo.co.uk/">Yo!Home</a> hitting London right now. A single room transforms to kitchen, diner, lounge or boudoir at the push of a button. It’s cramped, but facebook friends hang in virtual space.</p>
<p>For others, a prefab backyard flat might appeal. Changes to the NSW planning system mean small accessory dwellings (AKA granny flats) are now permissible on most residential lots.</p>
<p>It’s about making sure there’s sufficient housing of all sizes, types and costs in well-located areas. Extending the range of housing options also means sensible and committed strategies for planned decentralisation, in selected suburban and regional centres.</p>
<p>Home ownership rates in Australia have fallen, threatening to deepen the wealth divide. But it’s not too late to make things fairer for aspiring home owners and long-term renters alike.</p><img src="https://counter.theconversation.com/content/17697/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicole Gurran receives funding from the Australian Research Council and has received funding from the Australian Housing and Research Institute (AHURI).</span></em></p><p class="fine-print"><em><span>Peter Phibbs receives funding from the Australian Housing and Urban Research Institute</span></em></p>For all our talk about housing affordability, few people want house prices to drop. That’s because most Australians are home owners, and much of our wealth is stored in housing. But recent figures released…Nicole Gurran, Associate Professor, University of SydneyPeter Phibbs, Chair of Urban Planning and Policy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.