tag:theconversation.com,2011:/us/topics/tax-concessions-16636/articlesTax concessions – The Conversation2023-03-28T23:13:31Ztag:theconversation.com,2011:article/2026302023-03-28T23:13:31Z2023-03-28T23:13:31ZInheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year<figure><img src="https://images.theconversation.com/files/517641/original/file-20230327-485-73myrj.png?ixlib=rb-1.1.0&rect=143%2C395%2C3808%2C1814&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>Asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.</p>
<p>The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 <a href="https://theconversation.com/tax-breaks-cost-a-reported-250-billion-but-handle-these-new-figures-with-care-200819">Tax Expenditures and Insights Statement</a>) and reply as if political constraints were not a problem.</p>
<p>The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and <a href="https://www.oecd.org/">OECD</a> officials, and a former member of the Reserve Bank board.</p>
<p>Asked to choose tax measures on the basis of <a href="https://www.investopedia.com/terms/e/economic_efficiency.asp">efficiency</a> – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.</p>
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<p>International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.</p>
<p>This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.</p>
<p>Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014. </p>
<p>Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.</p>
<p>Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.</p>
<h2>Negative gearing an ‘easy win’</h2>
<p>A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at <a href="https://treasury.gov.au/publication/p2023-370286">$24.4 billion per year</a>.</p>
<p>Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.</p>
<p>University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.</p>
<p>Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.</p>
<p>One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.</p>
<h2>‘Unfair’ super concessions and tax-free inheritances</h2>
<p>Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.</p>
<p>None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.</p>
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<p>Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions. </p>
<p>Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February. </p>
<p>The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice. </p>
<h2>Missing fixes: Stage 3 and a carbon tax</h2>
<p>Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated “<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3</a>” tax cuts for high earners, due to take effect in 2024.</p>
<p>The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years. </p>
<p>Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.</p>
<p>Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.</p>
<p>Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion. </p>
<p>If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.</p>
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<p><em>Individual responses:</em></p>
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Read more:
<a href="https://theconversation.com/how-can-australia-pay-368-billion-for-new-submarines-some-of-the-money-will-be-created-from-thin-air-202150">How can Australia pay $368 billion for new submarines? Some of the money will be created from thin air</a>
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<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>Asked to choose the fairest ways to raise billions, half of the economists backed introducing inheritance taxes. Around a third chose winding back super tax concessions and increased resource taxes.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2013932023-03-08T08:33:49Z2023-03-08T08:33:49ZPolitics with Michelle Grattan: Chair of Retirement Income Review, Mike Callaghan, on reforming superannuation<p>Treasurer Jim Chalmers sparked a political row when he announced a tax hike on superannuation concessions for accounts with balances over $3 million, from 15% to 30%, to begin in 2025. Polling indicates the move has broad support from the public, although any change to super is always controversial. Opposition leader Peter Dutton has promised the change would be reversed by a Coalition government. </p>
<p>Mike Callaghan, a former treasury official, chaired the Retirement Income Review that was handed to the Morrison government in 2020.</p>
<p>Callaghan sees the Chalmers’ change to super as “an important step”. </p>
<p>“I think one of the most encouraging things is the fact that this issue regarding equity and sustainability of superannuation, and the measure, has taken place now because it’s a very controversial topic […] The fact that we have seen movement is very encouraging.” </p>
<p>“There’s a lot more that needs to be done in terms of improving the equity and sustainability of the retirement income system and superannuation in particular.</p>
<p>"The unfortunate thing is, given the controversy around it, it might kerb enthusiasm […] towards some more significant changes for some time. That could be the downside of this.”</p>
<p>The superannuation tax concessions are skewed heavily towards higher income earners. Observers have noted that superannuation has become an inheritance vehicle in many cases. Ageing Australians are passing their assets to family rather than using the “nest egg” for their retirement. Callaghan sees this as a “significant issue”. </p>
<p>“It’s fine if people want to leave an inheritance to their children, but what we’re seeing now is that’s not generally a conscious decision of people. We’re seeing across the system now, people not drawing [superannuation savings] down to use them for the intended purpose, which was to support the standard of living in retirement. </p>
<p>"The problem is […] that people don’t know what to do to make the best use of the assets they have in retirement. A lot of it is ignorance, a lot of it is confusion, a lot of it is that having a savings mentality has been drummed into them. Build up your nest egg. Don’t spend your nest egg.”</p>
<p>People need advice to navigate the system “and they’re not getting the advice. The biggest deficiency we’ve seen that’s leading to this outcome, I think, is that people don’t get advice. I think it’s about only 10% of retirees actually get advice entering retirement.</p>
<p>"They need a positive push that they do need advice. When you see the surveys of why people don’t get advice, they say ‘it’s too costly’ and they say, ‘but I don’t have that big financial asset, so I’m not one that has that need for financial advice’. There’s the other one of lack of trust.”</p>
<p>Home ownership is a major factor in what life will be like for retirees. “If you own your own house, you don’t have to pay rent and you have a substantial asset […] that you can draw on to support your retirement.”</p>
<p>But Callaghan doesn’t think younger people should be able to access their super for a house deposit. “While [having a home is] important, solving the problem of helping first home owners get into housing is not going to be solved by tweaks to the superannuation system. It’s not going to achieve its objective at all, as many people say, it’s likely to just add extra pressure to house prices and there is a cost, this very significant cost to the individual of letting them access superannuation.”</p><img src="https://counter.theconversation.com/content/201393/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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>Michelle Grattan and Mike Callaghan discuss the government's change to super, the complexities regarding it, and whether young people should be able to access it for a house depositMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2008242023-02-28T03:42:42Z2023-02-28T03:42:42ZAlbanese government to hike tax on earnings from big super balances – but not until 2025-26<p>The tax rate on earnings from superannuation balances above $3 million will double to 30% from 2025-26. </p>
<p>The pre-budget decision – approved by the government’s expenditure review committee on Monday and ticked by the cabinet on Tuesday morning – cuts off what was becoming a potentially damaging debate for the government. </p>
<p>The timing of its implementation – not until the next parliamentary term – also seeks to neutralise the “broken promise” argument. Prime Minister Anthony Albanese said before the 2022 election that Labor had no intention of changing superannuation arrangements.</p>
<p>“No superannuation tax change proposed by the government will take effect this term of parliament,” Treasurer Jim Chalmers said on Tuesday.</p>
<p>But the government will introduce legislation for the measure “as soon as practicable”.</p>
<p>The decision was announced by Albanese and Chalmers at a news conference. </p>
<p>At present earnings from superannuation in the accumulation phase are taxed at up to 15%. </p>
<p>The Treasury’s statement of “tax expenditures”, also released on Tuesday, shows super tax breaks make up a third of the more than $150 billion annual total of the top ten tax expenditures. </p>
<p>Chalmers pointed out the majority of the about $50 billion in super tax breaks go to high income earners. </p>
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<a href="https://theconversation.com/grattan-on-friday-defining-superannuations-objective-should-leave-room-for-debate-about-its-use-for-housing-200551">Grattan on Friday: Defining superannuation's 'objective' should leave room for debate about its use for housing</a>
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<p>The tax change will bring $900 million over the forward estimates, $2.3 billion in its first full year, and $3.2 billion over five years. </p>
<p>What the government terms “a modest adjustment” is not retrospective – it applies to future earnings.</p>
<p>The government said the change would only affect 0.5% of those with superannuation accounts – some 80,000 people. These people will continue to have the current 15% rate on earnings from the $3 million below the threshold. The change does not limit the size of account balances.</p>
<p>Chalmers said the threshold would not be indexed, meaning that in time, more super accounts would be drawn into paying the 30% rate.</p>
<p>The treasurer said the measure was to improve “the structural position of the budget” – it was not about using the money for another purpose. </p>
<p>Chalmers said the “Tax Expenditures and Insights Statement” showed more than 55% of the benefit of superannuation tax breaks on earnings went “to the top 20% of income earners, with 39% going to the top 10% of income earners”.</p>
<p>A “tax expenditure” is where certain taxpayers or activities receive special treatment. They include, for example, concessional rates, discounts, exemptions and rebates. </p>
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Read more:
<a href="https://theconversation.com/word-from-the-hill-albanese-at-the-national-press-club-aston-byelection-super-battles-200453">Word from The Hill: Albanese at the National Press Club, Aston byelection, Super battles</a>
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<p>The statement is required under the Charter of Budget Honesty, which dates from the days of then treasurer Peter Costello. </p>
<p>The latest statement includes a distributional analysis of large tax expenditures which shows a breakdown by income, gender and age. </p>
<p>In 2019-20 91% of the benefit of the concessional tax on superannuation contributions went to people with above median income, and 30% to those in the top income decile, the statement said. </p>
<p>“People in higher taxable income deciles receive a larger share of the benefit due to making larger contributions and paying higher marginal rates of tax, which makes the flat 15% rate of tax on superannuation contributions more concessional.” </p>
<p>Men received an average benefit of $1950; women an average benefit of $1390. This reflected men on average having higher incomes, making larger contributions, and facing higher income tax rates. </p>
<p>People with above median income received 82% of the benefit from the concessional tax on superannuation earnings; those in the top income decile received 39%. Men received an average benefit of $1100, and women $750. </p>
<p>Shadow treasurer Angus Taylor said the super decision broke a promise. “This is the Labor party that says one thing before an election and does something very different afterwards,” he said. </p>
<p>“When the Labor party runs out of money, it comes after yours.”</p><img src="https://counter.theconversation.com/content/200824/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan 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 Treasurer pointed out the majority of the about $50 billion in super tax breaks go to high income earnersMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1372322020-05-03T19:50:09Z2020-05-03T19:50:09ZPost-coronavirus, we’ll need a working tax system, not more taxes and not higher rates<figure><img src="https://images.theconversation.com/files/331672/original/file-20200430-42918-1bauua.jpg?ixlib=rb-1.1.0&rect=168%2C343%2C3585%2C2141&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>Oliver Wendell Holmes Jr famously observed in 1927 that “taxes are what we pay for civilised society, <a href="http://www.worldlii.org/us/cases/federal/USSC/1927/178.html">including the chance to insure</a>”. </p>
<p>Whilst tax as a price for civilised society is well understood, less appreciated is the second part of his observation – that tax provides a chance to insure against a crisis. </p>
<p>As nations emerge from the COVID-19 crisis with policies unthinkable just six months ago, and associated debts previously unimaginable, it is becoming clear that while some were well insured and able to respond rapidly, most were underinsured, exposing their civilisations to previously unthinkable risks.</p>
<p>In many ways Australia is an exemplar in its use of taxation to provide the “chance to insure”. It funds Medicare; the Pharmaceuticals Benefit Scheme; the Higher Education Loan Program; the Superannuation Guarantee Charge and contingency-based welfare payments.</p>
<h2>COVID has exposed the weakness in our system</h2>
<p>COVID-19 has exposed how underinsured Australia is in other ways. It will have to borrow heavily to protect the economy, but for many years won’t be able to impose the extra taxes that will be needed to pay down the debt.</p>
<p>Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery.</p>
<p>The only realistic option is to review what Australia gives away, such as <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">tax concessions,</a> and what it fails to collect, as measured by the so-called <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/">tax gap</a>. </p>
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Read more:
<a href="https://theconversation.com/did-you-cheat-on-your-taxes-heres-why-your-days-may-be-numbered-57622">Did you cheat on your taxes? Here's why your days may be numbered</a>
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<p>The tax gap is the difference between the amount the Tax Office collects and what we would have collected if every taxpayer was fully compliant with tax law. </p>
<p>In 2016-17, the Commonwealth raised <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5506.0">A$389 billion</a> in taxes, intentionally gave away an estimated <a href="https://treasury.gov.au/publication/p2019-357183">$166 billion</a> and unintentionally failed to collect a further <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">$30-35 billion</a> that the Tax Office knows of. </p>
<p>Mapping out a pathway to winding back government debt and funding programs to better insure our civilised society has to begin with ensuring those who are not currently carrying their fair share of the legislated tax burden do so through reforms to reduce non-compliance. </p>
<h2>Many of us aren’t paying the tax we should</h2>
<p>The Tax Office conservatively estimates that non-compliance for the taxes it has so far examined is equivalent to more than <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">8%</a> of the tax revenue it collected in 2015-16.</p>
<p>The Treasury also estimates that tax concessions in 2017-18 were equivalent to <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">41%</a> of Commonwealth government revenue, or more than 9% of GDP (although it cautions against adding estimates together as reducing one concession can affect the use of others).</p>
<p>Given the scale of the Commonwealth response to COVID-19, the government will need additional tax revenues of around 2.5% of GDP (about $50 billion) for some years. </p>
<p>This should not prove insurmountable. In comparison with other advanced economies, Australia is a relative low taxer with a total tax burden of 28.6% of GDP in 2017-18, well below the OECD average of about 34.5%. </p>
<h2>There’s revenue going begging</h2>
<p>The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion). </p>
<p>There’s much more available from reducing tax concessions, removing the personal tax-free threshold, winding back retirement savings concessions, and broadening the goods and service tax (especially from fully taxing the food that is already partially taxed). </p>
<p>Lower income groups affected by the changes should be compensated by improved targeting of expenditure programs.</p>
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Read more:
<a href="https://theconversation.com/cabinet-papers-1998-99-how-the-gst-became-unstoppable-128844">Cabinet papers 1998-99: how the GST became unstoppable</a>
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<p>Right now we’ve a near-universal welfare system and a targeted tax system.</p>
<p>The way out of our present problems is to make the tax system more universal and the welfare system more targeted.</p>
<p>New taxes and higher rates should be resisted, especially if made more palatable by more concessions.</p>
<p>What we are proposing would not only result in a tax system that was simpler and harder to escape – but one that was capable of funding the insurance we will need to preserve our society into the future</p>
<p>There’s no reason to think there won’t be another pandemic exposing the weaknesses in our tax system that remain.</p><img src="https://counter.theconversation.com/content/137232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We are failing to collect and giving away in tax concessions hundreds of billions.Neil Warren, Emeritus Professor of Taxation, UNSW SydneyRichard Highfield, Adjunct Professor of Taxation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/444382015-07-09T05:23:58Z2015-07-09T05:23:58ZOsborne’s living wage won’t spare low-income families from cuts<figure><img src="https://images.theconversation.com/files/87827/original/image-20150708-31569-1xuc4p6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Worse off than before.</span> <span class="attribution"><span class="source">from www.shutterstock.com</span></span></figcaption></figure><p>In his latest budget, George Osborne took the biggest step toward tackling low pay since the introduction of a national minimum wage in 1999. The chancellor <a href="http://www.bbc.co.uk/news/uk-politics-33437115">announced</a> a national living wage of £7.20, which is set to rise to £9 by 2020. This is more than just a re-branding and raising of the minimum wage, currently £6.50 per hour. It is an acceptance that setting a wage floor is a crucial part of attempts to raise living standards for low-paid workers. </p>
<p>Up to now, the <a href="https://www.gov.uk/government/organisations/low-pay-commission">Low Pay Commission</a> has scrupulously avoided this issue, with a brief to set the minimum wage based solely on what the labour market can safely support. But Osborne has clearly done some careful political calculations in response to the <a href="https://theconversation.com/living-standards-have-fallen-for-all-but-the-wealthiest-britons-41286">living standards crisis</a>. The result is a nod to the idea that – in the words of the <a href="https://www.tuc.org.uk/economic-issues/britain-needs-pay-rise">Trade Union Congress</a> – “Britain needs a pay rise”.</p>
<h2>Meeting living standards</h2>
<p>At first sight, Osborne’s announcement sounds like good news for low income earners. My team and I <a href="http://www.lboro.ac.uk/research/crsp/mis/thelivingwage/">have calculated</a> that the current minimum wage is insufficient to support what the public regard as a <a href="http://www.lboro.ac.uk/research/crsp/mis/thelivingwage/">minimum income standard</a>, which allows you to maintain a decent standard of living. Based <a href="http://www.livingwage.org.uk/calculation">on our calculations</a>, the out-of-London living wage is currently set at £7.85 per hour.</p>
<p>Although Osborne’s initial £7.20 living wage does not meet this threshold, he has committed to raising it year-on-year, until it reaches £9 by 2020. This means that the official living wage will eventually be 15% higher than our £7.85 present figure, and more than this rate would be in 2020 if it rose with projected inflation. </p>
<p>But despite these promising signs, the combination of higher wages and reduced in-work support – the two big ticket items of this budget for low-income workers – will actually leave many of them considerably worse off.</p>
<h2>Moving backwards</h2>
<p>This can be illustrated very simply by considering what will happen to a parent working full-time on the minimum wage over the next year. The jump from a £6.50 to a £7.20 wage will give them a handsome pay rise: from £12,710 a year to £14,080 – an increase of £1,370. </p>
<p>However, this will reduce the family’s entitlement to tax credits for three reasons. First, higher earnings reduce tax credit entitlements anyway. Second, the rate at which this happens was cranked up in the budget (from 41% to 48% of relevant earnings). And third, the amount you can earn before that clawback takes place was more than halved. </p>
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<a href="https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=425&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=425&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=425&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=534&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=534&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87835/original/image-20150708-31567-habi8h.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=534&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Income cut.</span>
<span class="attribution"><span class="source">Donald Hirsch</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>As the above graph demonstrates, the result is that tax credits for these families will be £2,330 lower by this time next year, wiping out the pay rise and causing a net loss of £960.</p>
<p>This is just one example of how reductions in support for working families’ incomes can more than wipe out gains from better pay. This has been a huge tension in the story of the living wage over the past few years. According to our <a href="http://www.jrf.org.uk/publications/minimum-income-standard-uk-2015">latest calculations</a>, families on the minimum wage are typically around £2,000 a year further short of meeting our minimum income standard now than in 2008 – even though wages net of taxes are actually at a similar level now in real terms as they were then.</p>
<p>This budget marks a turning point in the debate about living standards, pay and benefits. The case for employers to pay a decent rate is now being accepted by society and by government. But this doesn’t solve the problem of low family income. Without sustained support, many families will be a lot worse off. So while it will now be easier to separate these two issues out, this will not be of much solace to those currently suffering severe cuts.</p><img src="https://counter.theconversation.com/content/44438/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Donald Hirsch is a member of the Labour Party. </span></em></p>Despite the announcement of a living wage, less well off families are actually set to be worse off.Donald Hirsch, Director of Centre for Research in Social Policy , Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/410882015-05-04T19:25:56Z2015-05-04T19:25:56ZTime to listen to the evidence for a rethink of super tax concessions<p>Evidence doesn’t matter when it comes to policy development. At least it doesn’t matter as much as it should in theory.</p>
<p>In theory, the full range of evidence is sought and nothing is off limits. In theory, objective evidence will show a clear path forward that is obvious to everyone. And in theory, as soon as new evidence is available, it will result in policy action.</p>
<p>This is the “evidence-based policy” mantra that echoes through forums for Australian scholars and bureaucrats, that academics rely on to train future policymakers, and that can even be found in the vision statements of Commonwealth departments.</p>
<p>But of course there can be big difference between theory and reality. Especially when that reality is a government minority in the upper house and <a href="https://theconversation.com/the-new-senate-could-be-abbotts-obstacle-or-an-opportunity-28002">one of the most complex Senates</a> in living memory.</p>
<p>Let’s take the current <a href="http://www.smh.com.au/federal-politics/political-news/its-super-tax-concessions-not-pensions-that-are-killing-the-budget-20140421-zqx7p.html">superannuation debate</a> for example.</p>
<p>Over the last six months a public consensus has emerged among academics, think tanks, community organisations, elements of the superannuation industry and most politicians about superannuation. They now agree that superannuation tax concessions are growing rapidly, are unevenly distributed and are in need of reform. Indeed, even new Treasury Secretary John Fraser has said we need a “<a href="http://www.smh.com.au/federal-politics/political-news/treasury-boss-john-fraser-calls-for-a-fundamental-rethink-of-superannuation-pensions-20150408-1mgqwq.html">fundamental rethink</a>” of retirement income policy.</p>
<p>Clearly, this public consensus has emerged because the latest evidence is in. We finally have a clear path forward about which everyone is agreed. Well, not quite.</p>
<h2>The evidence is old, political interest is new</h2>
<p>First, the evidence hasn’t changed. For many years, academics, bureaucrats and financial planners have known that the system of tax concessions for superannuation was fundamentally flawed. They have asked why – when the supposed purpose of superannuation is to reduce the number of Australians relying on the aged pension – does our system shovel billions of dollars of taxpayers’ money to wealthy people who were never going to get a pension anyway?</p>
<p>Back in 2007, <a href="http://media.wix.com/ugd/b629ee_7e1713e1e3d1f4d5be149103ff8f616b.pdf">Australia Institute research showed</a> that it was cheaper for the federal government to provide the age pension than it was to fund so called “self-funded retirement” via tax concessions. Since that time, dozens of analysts using a variety of methods and data sources have confirmed that finding. </p>
<p>Despite all the available evidence, up to now, the response has been policy inaction. For instance, both major parties went to the 2013 federal election <a href="http://www.abc.net.au/news/2013-07-31/bowen-promises-five-year-freeze-to-superannuation-policy/4856748">promising</a> to give the superannuation industry “<a href="http://www.smh.com.au/federal-politics/political-news/coalition-in-pledge-to-shield-super-20130127-2df10.html">certainty</a>”, which is just good spin for ignoring the problem.</p>
<p>Second, what has changed in the past six months is not the size or rigour of evidence regarding the problem, it is the political significance of the problem. To put it another way, the research that is behind this new-found interest in reforming superannuation is not economic data, it is polling data.</p>
<p>In opposition, the Coalition had a simple (but effective) political strategy in the lead-up to the 2013 federal election. Promise to do popular things like scrapping the carbon tax, avoid promises to do unpopular things such as cutting the age pension, and suggest the Rudd/Gillard/Rudd budget deficits constituted a “budget emergency” caused by a “reckless” government.</p>
<p>Similarly, on entering government, the prime minister and treasurer had a clear budgetary (and re-election) strategy: </p>
<ul>
<li><p>Step one: use the Commission of Audit to confirm that the budget emergency was even worse than previously thought. </p></li>
<li><p>Step two: use the commission’s findings to justify unpopular decisions (such as a GP co-payment and cuts to the age pension). </p></li>
<li><p>Step three: wait two years until things had settled down in the electorate before announcing tax cuts for middle and high-income earners in the lead-up to the 2016 election. </p></li>
</ul>
<p>This could have been an effective strategy, if only the Senate had not refused to support spending cuts that were not signalled before the last election.</p>
<h2>Where does superannuation fit into all this?</h2>
<p>So what has this got to do with the role of evidence and the emergence of a public consensus around superannuation policy? Well, a lot.</p>
<p>Where the Coalition government has succeeded is in convincing people that the budget deficit needs fixing. As anyone with a household budget understands, if you can’t cut your spending, then the only other way to avoid running up your debt is to increase your income. This is how common sense has come to prevail where tax concessions on superannuation are concerned.</p>
<p>According to Treasury, <a href="http://www.treasury.gov.au/%7E/media/Treasury/Publications%20and%20Media/Publications/2015/Tax%20Expenditures%20Statement%202014/Downloads/PDF/TES_2014.ashx">tax concessions on superannuation</a> cost the Commonwealth government <a href="http://www.abc.net.au/news/2015-04-01/lewis-woods-tax-reform-a-super-idea/6363644">around $30 billion</a> per year. Again according to Treasury, more than one-third of that lost revenue goes <a href="http://www.abc.net.au/news/2015-04-21/super-tax-concessions-fc/6365098">to the top 10% of income earners</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=494&fit=crop&dpr=1 754w, https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=494&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/80189/original/image-20150504-23890-1q6pcjx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=494&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Treasury estimates from the March 2015 Tax Discussion Paper show much in superannuation tax concessions (in green) goes to the top income earners.</span>
<span class="attribution"><a class="source" href="http://bettertax.gov.au/files/2015/03/TWP_combined-online.pdf">Commonwealth Government March 2015</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>So, if you want to have a big impact on the budget deficit, there are few policy areas that promise as much as the reform of superannuation tax concessions.</p>
<p>To reiterate our point, it is not that evidence is unimportant for policy development (often it is), but if it is a competition between politics and evidence, bet on politics every time. </p>
<p>We suggest that this is a principle that goes beyond the example of superannuation.</p>
<p>If we look to the international policy context, a similar story is playing out in relation to corporate tax evasion. Everyone who has taken the time to look at the evidence has known what Apple and Google have been up to with their tax for a decade. But in Europe – where unemployment and deficits remain high after the global financial crisis – it is politics (not new evidence) that has led to taking the “<a href="https://theconversation.com/irelands-move-to-close-the-double-irish-tax-loophole-unlikely-to-bother-apple-google-33011">double Irish sandwich</a>” off the tax-evasion menu. </p>
<p>This is equally the case in Britain. Poor polling in the lead-up to the May 7 general election has provided the political incentive for their Coalition government to enter into <a href="http://www.abc.net.au/news/2015-04-19/australia-uk-crackdown-profit-shifting-multinational-companies/6403712">a new partnership</a> with the Australian government to chase down firms that shift their profits offshore.</p>
<h2>Key MPs can tip balance towards evidence</h2>
<p>In our recent book on <a href="https://www.mup.com.au/items/152294">Minority Policy</a>, we argue that the conventional Australian approach to evidence-based policy inevitably results in complaints that good policy is being ruined by bad politics. This offers little to help understand the nuances of policy development in minority government contexts and does even less to support better links between evidence and policy in these contexts. In response, we suggest that the focus of those dedicated to improved public policy should be the question of <em>when</em> does evidence matter and <em>when doesn’t</em> it?</p>
<p>We argue that an understanding of the motivations and priorities of the parliamentarians who are, or might soon be, in a position of holding the balance of power can provide a powerful new lens through which the policy development process can be understood. </p>
<p>Like government ministers, Jacquie Lambie, Nick Xenophon and Clive Palmer all claim to consider evidence before making their decisions. But politicians representing different sections of the electorate can value different types of evidence, or can consider the same evidence but come to different conclusions. It is no longer just the evidence preferred by the minister that matters.</p>
<p>The evidence about superannuation tax concessions has been in for years, but it is the political will that has been out. However, the mood has clearly changed. There is now public consensus for a “fundamental rethink”. </p>
<p>Those interested in the role of evidence in informing and shaping policy can learn a lot by watching closely to see when it matters, when it doesn’t, and what might explain the difference.</p><img src="https://counter.theconversation.com/content/41088/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Over the last six months a public consensus has emerged among academics, think tanks, community organisations, elements of the superannuation industry and most politicians about superannuation.Richard Denniss, Adjunct Professor, Crawford School, Australian National UniversityBrenton Prosser, Senior Research Fellow, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.