Employers will be required to increase their superannuation contribution from 9 per cent to 12 per cent by 2019-20.
The changes, which are the Government’s response to the Henry tax review, will be phased in over seven years starting in 2013, and will give employees who are aged 30 an extra $108,000 in super savings, the Government estimates.
The announcement is part of a “first wave” of tax reform which focuses on super, company tax and superannuation, which were recommendations in the review.
The Government has been criticised for proposing just four key changes to the taxation system, despite Treasury secretary Ken Henry making 138 recommendations in his long-awaited report.
Prime Minister Kevin Mr Rudd said the four areas the Government was addressing were the core issues.
“You can do a mechanical count of the numbers of technical recommendations, and some of those you wouldn’t touch with a barge pole,” he said today.
“But I’ve got to say the core ones to do with … keeping our government finances strong, protecting the future of the Australian economy, ensuring working families and small business get their fair share … I think this is a good start, but of course there’s more to do.”
Experts and commentators have called it a missed chance to fix the country’s tax system.
One columnist was even more scathing. In his analysis of the reform, Herald Sun expert Terry McCrann wrote: “Kevin Rudd is running scared – clammy palms, hair bristling on the back of his neck, whole body shivering: scared, scared, scared.”
Rather than release flagged changes on savings tax and simplifying tax returns, the Government has saved those changes to release later in the year, most likely to use in the run-up to this year’s federal election.
The new measures will cost about $2.4 billion over the next four years, and are dependent on the mining tax being brought into effect.
Changes announced yesterday:
* Super contributions to rise to 12 per cent by 2020
* New tax takes 40 per cent of big miners’ profits
* Company tax to be cut to 28 per cent in 2013/14
* Small business to benefit a year earlier
* “First wave” of reform only – more details to be released later
* Workers who earn under $37,000 will get up $500 a year from the Government, effectively cancelling out any tax these workers pay on their super contributions.
* Changes on savings tax, personal tax to be revealed “in coming months”
So, what’s in the Henry review for me?
The release of the Government’s “first wave” of reform doesn’t include the expected changes to tax on savings accounts or making tax returns easier.
But those changes are in the review, and Mr Swan told a media pack yesterday that the Government is “strongly in favour” of the recommendations around making tax time easier for working Aussies.
Here are the main points the Henry review has recommended, which the Government is expected to take up in some form later this year – most likely as part of its election platform.
Easier tax returns
The review recommends workers receive a “default return” from the ATO, which would only need the taxpayer’s tick of approval. In order for this to come into effect, the review recommends the scrapping of work deductions.
Basically, a deduction is money spent throughout the year on work-related expenses, which is then refunded by the Government when you submit your tax return. The Henry review proposes that most work-related deductions be scrapped, to be replaced by a standard rate “linked to the level of income from work”.
A standard deduction would cut the need to keep receipts. However to ensure workers with a high amount of deductions are protected, you would still be able to claim “substantiated expenses”.
Taxing income from savings
The review proposes a 40 per cent discount on all income from savings, as well as on all residential rental income and losses, and capital gains.
These recommendations were widely flagged prior to yesterday’s announcement, with critics saying the current system doesn’t give enough incentives for workers to put money in savings accounts.
Currently, interest earned on all savings accounts and term deposits is taxed at a worker’s top marginal rate.
It is far less generous than the tax treatment of other investments such as shares and property, which the review says encourages investors to take on too much debt.
What the Government won’t pick up
While the report was released yesterday, the Treasurer was quick to list certain parts of the review the Government definitely won’t be implementing, in the “interests of business and community certainty”.
So basically – these are the more out-there recommendations that the Government definitely won’t be using.
* Requiring parents to work when their youngest child turns four
* Hit single-income families
* Restrict eligibility to rent assistance for families
* Abolish the luxury car tax
* Change alcohol tax
* Ask states to charge market rents to people in public housing
* Reduce pay for those in defence forces
* Remove the Medicare levy
