BUDGET 2013: Tax drains on our best brains

Lower caps on higher education tax breaks are a blow to the education and up-skilling of Australian workers.

‘Stronger, Smarter, Fairer’ might be Labor’s catchphrase for this budget, but one savings measure seems to work directly against two of those terms.

By introducing a cap on work-related self-education claims, it’s the ‘stronger’ and ‘smarter’ bits that will come under threat.

The new tax write-off limit, of $2,000 per individual, will come into place from July 1, 2014, and is projected to save the government roughly $128 million per annum. That comes to $514.3 million over forward estimates.

In terms of ‘smarter’, the cap has the potential to reduce enrolment levels in the higher end of tertiary education – the kinds of programs that high earners tend to take to further their professional careers.

If we assume a 45-cent marginal tax rate (because such workers tend to be in the higher income brackets), individual spending on education totalling approximately $285 million would no longer be written off against those individuals’ taxable income.

That won’t deter everyone chasing an MBA or other professional upgrade, but it’s clearly a disincentive to undertake further tertiary education.

Stephen Darwin of the National Tertiary Education Union was at Parliament House just before this year’s budget lock-up to complain – alongside independent Andrew Wilkie and Greens leader Christine Milne – about tertiary funding cuts in general ($2.3 billion over forward estimates), which are only made worse by this $514 million clawback.

Darwin told Business Spectator: “This indicates a shift in the approach universities will take, as it will narrow the scope of curriculums across the country. Longer, less direct, courses are more likely to be impacted.”

Universities Australia chair Sandra Harding told a Press Club audience this week that the change will impact all workers considering up-skilling who are not supported by government funding. "Universities are bracing for an impact on full-fee postgraduate participation rates as students re-evaluate the affordability of this further study,” she said.

Treasury estimates that typical claims average just $905 per person, and most people with self-education expenses would not be affected.

However The Australian reports that the ATO put the average claim at $1827. Over 170,000 people – more than one-quarter of claimants – spend more than $2000 a year and will be affected, the figures suggest.

The problem for the Australian economy – the bit that will make us less ‘smart’ and less ‘strong’ – is that highly skilled workers, who are more likely to have to spend higher amounts when they are upskilling, are not the people the government should be deterring from further study.

The long-term brain drain to overseas economies of our best workers isn’t helped when we disincentivise locals who want to step up to replace them.

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