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ACOSS Budget Savings.pdf

ACOSS Budget Savings.pdf

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05/14/2014

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Proposals to strengthen the Budget and fundessential services
The Federal Government’s decision to defer achievement of a Budget surplus is sensible giventhe steep decline in Budget revenues, but bold action is still needed to remove wasteful andpoorly targeted sending from the Budget. This is needed both to restore the Budget bottom lineand to close gaps in the social safety net including a disability insurance scheme andimprovements in income support and employment services for unemployed people.We have identified $6 billion dollars of budget ‘waste’, including tax shelters and poorly targetedspending that mainly benefits people on high incomes, and people who have less need for Government support. We agree that the Federal Government needs to keep tightening its belt,and this can be done without harming the vast majority of people on low and middle incomes.These proposals are for this year’s federal Budget. Over the medium term there is much morethat could be done to limit waste in the Budget, including the sensible proposals in the HenryReport to remove incentives in the tax system for property speculation and tax investmentincomes in a more consistent way. ACOSS is undertaking further work in this and other areasand will outline reform proposals in the months to come.
Key Savings Measures
1.
Curb income tax avoidance
It’s unfair that people with higher incomes and ‘smart’ advice can avoid paying tax at their proper marginal rate and everyone else has to pay more tax to fund services.
Estimated savings: $3,300 million in 2014-15
i.
Private trusts
High-income individuals avoid tax by diverting their income into private‘discretionary’ trusts (sometimes called ‘family trusts’). In this way, people splittheir income with lower-income family members, avoid capital gains tax, andbenefit from tax breaks not available to owners of private companies.The loss of revenue could be reduced by tightening the tax treatment of capitalgains and concessions associated with investments held in trusts.
Estimated savings: $1,000 million in 2014-15
 ii.
Churning income through super accounts
to avoid taxes on wages:Workers over 55 on the top tax rates can ‘sacrifice’ part of their salary into their superannuation accounts and ‘pay’ themselves an equivalent superannuationbenefit, reducing their income tax rate to 15% without actually saving for their retirement. This could be curbed by reducing the annual contribution ‘caps’ incases where money is also being withdrawn from the fund.
Australian Council of Social Service | Locked Bag 4777 Strawberry Hills NSW 2012p 02 9310 6200 | f 02 9310 4822 | info@acoss.org.au | www.acoss.org.au
 
Proposals to strengthen the Budget and fundessential services
Estimated savings: $500 million in 2014-15
iii.
Capital Gains Tax
Capital gains (income from sale of assets such as property and shares) are taxedat half the normal marginal rate and one quarter for sale of small business assets,a tax break that mainly benefits the well-off. Gains from sales of small businessassets may never be taxed in the owner’s lifetime. The Henry Report proposedincreasing tax rates on capital gains by 20%. As an interim measure we proposethat special additional tax breaks for small business assets be removed.
Estimated savings: $1,100 million in 2014-15
iv.
International companies reducing tax paid in Australia
The opportunities for international companies to reduce tax paid in Australia byincreasing the debt levels of their Australian entities should be reduced. The safeharbour debt limit in the ‘thin capitalisation’ rules for ‘general entities’ should behalved from 3:1 (3 parts debt per one part equity) to 1.5:1.
Estimated savings: $700 million in 2014-15
2.
Reduce poorly targeted spending programs and tax breaks
Everyone is entitled to expect good quality community services but too much assistancethrough both spending programs and tax breaks linked to services goes to people whoneed it least. Tax breaks are an inequitable way to fund services because the bottom onethird of households (whose incomes are too low to pay tax), do not benefit.
Estimated saving: $2,450 million per year (detailed below)
i.
Health insurance rebate
The rebate disproportionately benefits those who can afford health insurance andextends to ancillary or ‘extras’ cover not directly related to hospital care. The rebatefor ancillary cover subsidises services for high income earners that many low incomeearners still can’t afford (e.g. dental) and it would be fairer and most cost effective tofund those services directly.
Estimated savings: (removal of rebate for ‘extras’ cover): $1,250 million
Australian Council of Social Service | Locked Bag 4777 Strawberry Hills NSW 2012p 02 9310 6200 | f 02 9310 4822 | info@acoss.org.au | www.acoss.org.au

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