PETER RYAN. CEDA urges Morrison Government to back Labor tax changes (ABC News).

Mar 12, 2019

An independent economic think tank is urging the Morrison Government to do the politically unthinkable ahead of an expected May election and back Labor’s plans to end unsustainable tax breaks.

The Committee for Economic Development of Australia (CEDA) says tough decisions need to be made about controversial tax credits on dividends and capital gains tax to ensure the anticipated return to a budget surplus is long-term instead of a one-off.

In the case of the tax credits that Labor wants to abolish, CEDA says the cost to the budget has ballooned and the winners are individuals with big investment portfolios rather than small investors.

CEDA says the cost to the budget has surged from $550 million when the break was first introduced in 2000 to $5 billion today, mostly to individuals with big investment portfolios.

A recent study by the Parliamentary Budget Office found more than half of excess franking credits went to self-managed super fund accounts with balances more than $2.4 million.

CEDA chief executive Melinda Cilento told the ABC’s AM program that current and future governments could not “continue to kick hard decisions down the road”.

“They are only becoming more challenging and this puts a greater burden on future generations,” Ms Cilento said.

“Addressing tough issues now and embedding better discipline will create more opportunities and time for transition. The longer we wait, the more blunt and abrupt necessary changes will need to be.”

In addition to targeting refundable franking credits, CEDA wants to rein in concessions on work-related expenses and capital gains tax to reinstate budget discipline.

CEDA also suggests savings across the Pharmaceutical Benefits Scheme (PBS), industry assistance and healthcare programs.

CEDA’s tax options

CEDA’s report on framing a sustainable budget found there were several short-term options to shore up the long-term Commonwealth Government tax base.

“It will ensure that there is enough revenue to fund the services and supports that the community expects, while minimising the drag on the economy from the most inefficient taxes,” the report said.

“At this stage, there is no need to rush through tax changes with the singular purpose of revenue raising.”

Measure Fiscal implication Benefit
Tighten work-related expenses $7b a year (ATO estimate) Broadens the personal tax base, simplifies administration and compliance
Cut capital gains deduction $32b over 10 years (PBO) Reduces the distortionary impact it has across different asset classes, particularly housing
Limit negative gearing Up to $3.9b a year (Assoc prof Ben Phillips, ANU) Lower priority as CEDA says the case for cutting CGT discount is stronger than the case for limiting negative gearing
Removing dividend imputation refundability $5b a year (PBO) Addresses revenue sustainability concerns as more Australians enter concessional tax treatment in retirement.
Changing alcohol tax $1.3b a year (Vic Health) Move to uniform volume-based tax; simplifies the system, broadens consumption tax base and better targets the social costs of alcohol use

Source: CEDA

Burden on future workers

“There have been welcome improvements in the federal budget position. But there are real risks to reaching and maintaining a surplus as we seek to pay down debt accumulated since the global financial crisis,” Ms Cilento said.

“At a time when households are already dealing with sluggish incomes, you can’t have a tax system that places an increasing burden on workers and bracket creep is an important area to address.”

While conceding that the push for a lower company tax rate has been shelved for now, Ms Cilento warns that the budget relies too heavily on traditional tax collections.

She also warns that in the absence of hard decisions, the budget is exposed to global shocks that could force any future government to take remedial action that could impact social welfare programs the community expects.

This article was published by ABC News on the 8th of March 2019. 

Peter Ryan is the ABC’s senior business correspondent. With more than 30 years of journalism experience, he contributes to a range of ABC News programs including the flagship radio current affairs programs AM, The World Today and PM, in addition to ABC News Channel and ABC News Online.

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