Malcolm Turnull’s transformation into Tony Abbott is nearly complete.
Despite promising a thorough examination and public debate, the Government has all but ruled-out meaningful tax reform. From The Australian:
Cabinet secretary Arthur Sinodinos sent a clear signal late yesterday that the government was retreating from “big bang” tax changes, telling Sky News there would be “modest incremental reform” that could be revealed before the federal budget on May 10.
As noted by Peter Martin today:
The government’s final package, due to be presented within weeks, will not restrict negative gearing to new houses, as Labor has proposed, but merely impose caps on the dollar amount of losses claimable, while also reducing the amount able to be directed into superannuation contributions.
The proceeds, perhaps just a few billion per year, will be available to fund an upward adjustment of the $80,000 tax threshold, providing relief to only the top 25 per cent of earners.
However, even minor changes to negative gearing are posing increasingly difficult for Turnbott, with several government back benchers urging him to abandon reform altogether so that the Coalition can more clearly differentiate itself from Labor:
Coalition MPs are now citing the Prime Minister’s own attack lines to encourage him to rule out changes to negative gearing altogether. “I think we should have an unequivocal position,” one Liberal MP told The Australian yesterday.
Others said it was time to rule out changes to negative gearing because of the risk of hurting ordinary Australians trying to build up their wealth via property. “I don’t think we should be making any change to it,” said one MP.
A third said Labor’s move to scale it back added to the need for the Coalition to rule out change. “There’s no point tinkering with negative gearing and muddying what will be a very powerful attack on the Labor Party,” he said.
Who cares about the national interest, hey? We’ve got some political points to score!
From the above we can infer that about the only meaningful tax-related reform to come from this Government is likely to involve replacing the 15% superannuation flat tax with something more progressive, such as a 15% deduction from one’s marginal tax rate. Don’t get me wrong, this is a very sensible move and is something that MB has championed for meany years, but it is hardly transformation and does not go nearly far enough to restore equity and sustainability to the super system.
The same goes for property tax concessions. Turnbott has already ruled-out changing the CGT discount, which is highly inefficient and inequitable, and has so far flagged placing a $20,000 cap on annual negative gearing deductions. Even if this cap manages to make it past reluctant Coalition back benchers – which is a big if – it would do little to curb negative gearing excesses.
As shown below, the average negative gearing loss was around $9,600 in FY2013 (latest available data):
Therefore, any cap would need to be set at a much lower level, say $10,000 per annum, to have much impact on Budget revenue or equity. As it stands a $20,000 threshold would really only act as a fig leaf to cover ongoing rorting of the tax system.
So much for genuine tax reform. Or the national interest.
