Case of give a little, take a little more
Draft legislation to axe the Minerals Resource Rent Tax released last month gives up an estimated $3.5 billion over the four-year forward estimates period, but also repeals measures that the Labor government appended to the mining tax when it was expected to raise much more, including a payment of up to $500 a year to those earning up to $37,000, accelerated depreciation for business vehicles, the schoolkids bonus, and loss carry-back provisions for companies. Overall, it claws back more than $13 billion.
The government's tax clean-up announced on Wednesday is incomplete, but also saves more than it costs, and only marginally shifts the political dial.
As it promised, the government will not proceed with Labor's plan to tighten up tax deductions on vehicles financed through novated leases by eliminating "tick-the-box" statutory calculations of business use for the vehicle.
Labor's change would have more tightly aligned deductions with business usage and reduced them, but it sent shockwaves through the local auto industry, and its removal might help buy a bit of time for the government's review of auto industry protection. The cost is almost $1.8 billion of revenue over four years.
It also promised not to legislate Labor's decision in April to impose a 15 per cent tax on superannuation pensions above $100,000, and delivered on that commitment on Wednesday, too.
It will be criticised for pandering to the rich - Labor's estimate in April was that only 16,000 individuals would be affected - but the new regime would have encouraged super fund splitting, and would have been difficult to administer - was essentially unworkable, according to Treasurer Joe Hockey.
Liability for the tax would have been difficult to predict, because a fund's income is not only affected by how much is invested, but by the investment return, which fluctuates.
Labor's estimate of how many individuals were affected was based on a $2 million fund delivering income at a rate of 5 per cent, for example. Better returns would have captured funds worth less than $2 million.
The cost-benefit equation on subsidising superannuation with tax breaks that favour wealthier savers still needs to be re-examined. Next year's financial system inquiry and the review of the tax system that follows it are forums. After axing Labor's tax rise the Coalition now rests on its pre-election commitment not to tamper with superannuation in its first term. Changes the two reviews throw up will be taken to the next election.
Axing the super tax rise costs the government $313 million over the forward estimates, and in a move it didn't flag it is also forgoing $267 million by not picking up Labor's ill-advised plan to cap self-education expense claims at $2000 a year.
Hockey said on Wednesday 174,000 people out of 639,000 who claim self-education expenses spend more than $2000, and that about 141,000 of them earn less than $80,000 a year.
It is cutting expected revenue from a crackdown on corporate tax minimisation by $700 million to $1.07 billion. Tighter thin capitalisation rules that will restrict deductions on debt in highly geared companies will be introduced as Labor planned, but a total ban on interest deductions on foreign investments that are not taxable in Australia has been dumped in favour of consultations aimed at producing rules that more precisely target tax avoidance, but leave companies clear to use our strong currency to invest overseas.
All up, just over $3 billion that Labor intended to raise in the next four years is being forgone. The government is, however, hanging on to tax changes that raise $10.9 billion over the forward estimates. They include a staged increased in tobacco excise that raises $5.2 billion, tighter controls over exploration deductions that raise $1.1 billion, a restriction on research and development claims by very large companies that raises just over $1 billion, the transfer of lost superannuation accounts to the Australian Tax Office (an $816 million grab that Hockey says the government doesn't like but cannot turn down), the closure of corporate tax consolidation loopholes ($540 million) and the phasing out of the medical expenses tax offset ($963 million).
The government inherited 96 tax proposals that were not legislated, and 64 of them are still undecided. It has given itself until December 1 to either scrap them or, most likely, adopt them.
Their total net value is only $72 million, however. The bulk of the clean-up is done, business is still paying a share of the new money that is being raised, and the government has honoured pre-election promises without severely denting the budget outlook.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
The Abbott government is focused on balancing fiscal responsibility with economic growth. Their recent tax clean-up announcement indicates a strategy of taking more than giving away, aiming to save more than it costs.
The Minerals Resource Rent Tax was a tax on profits generated from the extraction of mineral resources in Australia. It is being axed because it was not generating the expected revenue, and the government aims to repeal associated measures to save costs.
Repealing the Minerals Resource Rent Tax is estimated to give up $3.5 billion over four years, but it also claws back more than $13 billion by repealing associated measures like the schoolkids bonus and loss carry-back provisions for companies.
The government's tax changes aim to save more than they cost, impacting various sectors. For everyday investors, this means potential changes in tax deductions and benefits, such as the removal of the superannuation tax rise and adjustments to self-education expense claims.
The government will not proceed with Labor's plan to tighten tax deductions on vehicles financed through novated leases. This decision aims to support the local auto industry and avoid reducing deductions aligned with business usage.
By not proceeding with Labor's plan to impose a 15% tax on superannuation pensions above $100,000, the government avoids a complex and potentially unworkable tax system. This decision may benefit wealthier savers but also maintains the current superannuation framework for everyday investors.
The government has decided not to implement Labor's proposed 15% tax on superannuation pensions above $100,000, citing administrative difficulties and potential encouragement of super fund splitting.
The government decided not to cap self-education expense claims at $2,000 a year to avoid negatively impacting individuals who invest in their professional development, particularly those earning less than $80,000 annually.
The government is cutting expected revenue from a crackdown on corporate tax minimisation by $700 million to $1.07 billion, focusing on tighter thin capitalisation rules to restrict deductions on debt in highly geared companies.
The government is introducing tighter thin capitalisation rules to restrict deductions on debt in highly geared companies. However, they are opting for consultations to create precise rules targeting tax avoidance without hindering overseas investments.
By not capping self-education expense claims at $2,000 a year, the government is forgoing $267 million. This decision affects 174,000 people who claim more than $2,000, many of whom earn less than $80,000 annually.
The tax clean-up aims to balance the budget by saving more than it costs, with measures like increased tobacco excise and tighter exploration deductions. These changes are designed to raise significant revenue while maintaining pre-election promises.
The government is retaining tax changes that raise $10.9 billion, including increased tobacco excise, tighter exploration deductions, and restrictions on research and development claims by large companies.
The government inherited 96 tax proposals that were not legislated, and 64 of them remain undecided. They have set a deadline of December 1 to either scrap or adopt these proposals, which have a total net value of $72 million.
The government inherited 96 tax proposals that were not legislated, with 64 still undecided. They have until December 1 to either scrap or adopt them, with a total net value of $72 million.
By forgoing certain tax plans, such as the cap on self-education expenses and the superannuation tax rise, the government aims to support professional development and maintain a stable superannuation system, potentially benefiting everyday investors and the broader economy.
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