It's just six weeks to budget night and, as usual, a lot of ideas are being floated. The tactic is obvious: put it out there and see how the public reacts. By the time budget night comes the nation is in a state of fear. Next morning, we usually wake up grateful that it wasn't as bad as it could have been.
Obviously, any change will be vigorously opposed by one group or another. But the reality is that massive revenue shortfalls are looming, and this has huge implications for health care as the population ages. Today, in the interests of an informed debate, let's look at the implications of the major changes that may be talked about.
![Could inheritance tax – and a gift tax – go back on the national agenda?](/web/20170328021051im_/http://www.smh.com.au/content/dam/images/g/q/9/k/9/x/image.related.articleLeadwide.620x349.gv4fxd.png/1490443353356.jpg)
Any changes in GST will be attacked as regressive, which means they hit the poorest the hardest, but that criticism can be applied to any built-in tax. The classic examples are petrol tax and excise on liquor and cigarettes, which are all regressive. A major benefit of GST is that it's almost impossible to avoid, and is a great way of getting a chunk of the money that is currently circulating in the cash economy. While it may hurt low-income earners most, it actually hits high spenders the hardest, as they are the ones with the largest disposable income.
A call for a rise in the Medicare levy from 2 per cent to 4 per cent is just another way of asking for an increase in marginal tax rates. The money raised by the Medicare levy now is not all spent on Medicare – in the interests of transparency the term "Medicare levy" should be abolished and the extra percentage incorporated into the current tax rates.
It is ridiculous to be calling for an increase in marginal tax rates when one of the greatest challenges facing employees is bracket creep. In any event, higher tax rates make it more attractive for high income earners to negative gear for investment, as the government subsidises more of their shortfall than it does for lower income earners.
There have been all sorts of numbers tossed around about the cost to the country of negatively geared properties, but this discussion usually ignores the fact that most properties are positively geared after five years, and then go on to produce taxable profits. And of course when the properties are eventually sold to fund the investors' retirement, the investor will be hit with a double whammy of capital gains tax on the sale, and no age pension because their assets will exceed the Centrelink limit.
The Henry Review called on states to replace stamp duty with a land tax on every property. The reasoning was that stamp duty is an unreliable source of revenue, as it is dependent on booms and busts, and is also an impediment to moving. The ACT liked the concept so much that they've already implemented it – well, at least partly. You guessed it: they've introduced land tax on the family home, but retained stamp duty on purchases. There have been numerous reports in the press about protests by Canberra home owners who've seen their cost of home ownership rise by more than 40 per cent.
The problem with universal land tax is that it takes no account of ability to pay, and hits hardest those who are asset rich and cash poor, such as many retirees. Imagine the plight of an elderly couple who have owned a property in Sydney for almost 50 years and are now receiving the full pension because that house is their major asset. How could they possibly cope with a land tax bill of maybe $10,000 a year? Keep in mind too, that interest is charged by the ACT at 9.76 per cent on land tax arrears. Imagine a debt on your home accruing at a rate like that!
Expect to see death duties back on the agenda, but there is little likelihood that they will be implemented. You can't have death duties without gift duties, as older people could simply give their assets away to avoid death duties. In any event we have de facto death duties now. Although death does not trigger capital gains tax, the beneficiaries are liable for capital gains tax on bequeathed assets as soon as they sell them. Also, there is a tax of 17 per cent now on the taxable proportion of your superannuation that is left to a non-dependent.
As you can see, there are no easy solutions. Maybe, in the interest of all of us, governments should start to cut back on their own spending.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au
0 comments
New User? Sign up