In the season of good cheer, all we want is a fairer tax system
I am putting together a wish-list. It is not being mailed to the North Pole for Santa's attention; it is instead addressed to Joe Hockey in Canberra. This wish-list has nothing to do with the latest and best gadget on the market, but has everything to do with a fairer tax and retirement system.
The first item on my list is for the government to apply a principle that it uses for increasing tax collections. The federal government in June 2013 announced that it was going to index tobacco excise to average weekly ordinary times earnings.
On the one hand the government is all too ready to apply increases in an index - either the consumer price index or AWOTE, in the interest of maximising tax collection - but is reluctant to do it when it comes to making a fairer tax system.
An example of this is the income levels at which the different marginal tax rates apply. If it is good enough to increase an excise tax, based on the increased ability for Australians to pay it as a result of an AWOTE increase, the same principle should be applied to marginal tax rate thresholds.
The unfortunate truth is the federal government, by not indexing marginal tax rate thresholds, automatically gets an increase in tax collections as incomes increase and more people are paying tax at a higher rate.
There have been some changes in income levels for marginal tax rates over the years but there are a number of examples of where no changes have been made. Many of these relate to small business. The first of these is the income level at which a business must register for GST. In July 2000 the income threshold started at $50,000, it is now $75,000. If increases in AWOTE over the past 13 years were applied to the income level, it would now be in excess of $90,000.
Another example of this is the limit placed on one of the most valuable concessions introduced under the small business capital gains tax concessions in September 1999. This concession is the small business retirement exemption.
Once a small business owner qualifies for the concessions any capital gain made on the sale of their business will be tax-free when it is used for retirement purposes. When this concession was introduced it had a lifetime limit of $500,000. If this lifetime limit had increased in line with increases in AWOTE, it would now be more than $900,000.
The last item on my wish list has nothing to do with tax collection or thresholds, but has everything to do with improving the fairness of the taxation and retirement systems in Australia. Currently once a person turns 65 they must pass a work test to make super contributions. This work test requires a person to work 40 hours in a continuous 30-day period in paid work.
This test totally ignores all of the voluntary work done by hundreds of thousands of Australians who choose to give something back to the community, rather than being paid for working. The integrity of the system could still be preserved by making a voluntary work test stricter. Under this test, a person would need to work a minimum of 240 hours over a continuous six-month period for a registered charity or organisation.
If Hockey is really concerned about "fairer and simpler taxes for Australian families and businesses", he should start with my Christmas wish-list.
Max Newnham is the founder of the website smsfsurvivalcentre.com.au