What if...: Annette Sampson
Negative gearing, capital gains tax and super perks could be in the firing line
THE LOBBYING
Budget repair is still big on the government’s agenda so it would be surprising if some savings measures weren’t included in the budget on May 9 – even if they were just to offset any spending initiatives such as the much-talked-about plans to address housing affordability.
While we won’t know what cuts are planned until then, there is no shortage of ideas. The government has received 237 submissions from industry groups and other interested parties containing a plethora of savings suggestions – some of which have garnered more attention than others.
MEDICARE LEVY
Several groups (and politicians) have suggested the government increase the Medicare levy or the Medicare surcharge for higher-income earners who don’t have private health insurance.
A 0.5% rise in the levy could raise around $4 billion to $5 billion a year, according to the Australian Medical Association (AMA), which has argued that any extra money raised should go straight back into covering health costs. Australians, it says, are willing to consider increasing the levy for specific purposes, such as the 0.5% increase in 2014 to help fund the National Disability Insurance Scheme.
As lower income earners are exempt from the levy, this could be an easier sell than a broader measure such as increasing the GST (which was canvassed briefly last year before being dropped like a hot potato), though the AMA points out it would still fall short of solving the shortfall in health funding.
The Australian Council of Social Service (ACOSS) has proposed an alternative measure that could raise a similar amount without hitting middle-income earners. It has suggested the government extend the surcharge to all higher-income earners, not just those without private health insurance.
This would likely raise the ire of private health insurers (not to mention higher earners with health insurance), as would another proposal to abolish the tax rebate on private health insurance premiums, which ACOSS estimates could save another $3.4 billion in the coming year.
NEGATIVE GEARING AND CGT
You wouldn’t want to bet the house on cuts to either of these after the political storm last time they were mooted. But politically sensitive or not, both have been widely touted as a necessary part of any housing affordability package, with the capital gains tax discount widely viewed as the more palatable option for the government.
The Committee for Economic Development of Australia says halving the CGT discount could save $3.6 billion and would take much of the power out of negative gearing, as more of any gains would be taxed. Another option is to introduce a stepped discount that rewards longer-term investors by increasing the discount the longer a property is held. At the moment, investors can claim the full 50% discount on investments held for just 12 months.
Of course, the government would be unlikely to risk trying to push any retrospective measures through the senate, so grandfathering of existing gains could reduce the potential savings. Chartered Accountants Australia and New Zealand has proposed bringing pre-September 1985 assets (which are currently exempt) into the CGT net, with their cost for tax purposes deemed to be their value at that time, and examining the principal place of residence exemption to rein in the practice of people buying houses, renovating them and selling at a profit on a regular basis.
SUPER
Some submissions have called for the government to further curb tax concessions through measures such as giving everyone a 15% discount on their marginal rate for super contributions, taxing super in the pension phase at 15% and increasing the age at which retirees can access their super. It’s also worth noting that any changes to the CGT exemption could also flow on to super funds, which pay CGT on only two-thirds of any gains made on assets held for 12 months or more.
OTHER IDEAS
There is no shortage of other savings suggestions but some include simplifying and/ or winding back some of the CGT concessions for small business, phasing out allowances such as family tax benefit part B and the energy supplement, and adjusting the age pension income and assets tests.
DID YOU KNOW?
In 1999, the old rules allowing capital gains to be reduced by inflation were replaced by the 50% discount. At the time inflation was around 6%. It is now around 2%, rendering the 50% discount much more generous.