After mulling the idea for several months, the Turnbull Government has reportedly ruled-out reforming workplace deductions in a bid to find Budget savings. From The AFR:
The decision to leave tax deductions unchanged, which is related to the earlier decision to leave the rate and base of the GST unchanged, has further limited options for what is a politically critical May 3 budget for the government which will contain tweaks to superannuation tax concessions and limited measures targeting small and medium business.
…the government has given up on the idea, even though trading away every work-related deduction would free up about $5 billion a year.
The trouble is that if workers were going to lose deductions, they would need to be compensated with personal income tax cuts and they were ruled out last month when Mr Morrison said what meagre revenue there was had to be directed towards generating growth, meaning business.
While gutless, the Coalition’s decision not to reform work-related deductions is at least consistent with its stance on negative gearing.
It would have been to height of hypocrisy for the Coalition to allow individuals to claim unlimited negative gearing deductions for investments into perpetuity, while limiting work-related deductions.
However, an unfortunate by-product is that by refusing to reform tax deductions in general (both negative gearing and work-related), the Coalition has effectively ruled-out broadening the tax base and lowering the rate of personal income tax, which would have minimised distortions and created positive tax efficiencies.
