WORKERS will be encouraged to pump more cash into their superannuation accounts to boost national savings and help offset the growing cost of an ageing population by measures announced by the Federal Government as a result of the Ken Henry Report on the Australian taxation system.
But the mining industry will be whacked with a massive new tax bill – not only to help pay for the Government’s superannuation changes, but to fund new investment in infrastructure projects and tax cuts to small business.
Treasurer Wayne Swan – who has promised to make the tax system simpler and fairer – unveiled the changes in Canberra on Sunday, as part of the biggest tax overhaul for more than a decade.
However, the Government has steered clear of the more contentious and radical proposals put forward by Treasury Secretary Ken Henry.
It is the superannuation reforms that will have the greatest impact for ordinary taxpayers, by requiring employers to increase their Productivity Superannuation Contributions from 9% to 12% over a staggered period, thereby pumping more funds into employees’ superannuation.
The changes are likely to include boosting matched contributions from government for people on low incomes or creating a new tax deduction for personal contributions. Other options may include reducing the 15 per cent tax on contributions and earnings.
The pending review of the Financial Planning industry, removing the ability for commissions to be paid to advisers, will also increase the pool of funds available for long term equity building and increased Self-Managed Super balances.
Among the other big-ticket items, there will also be a revamp of family payments to focus on the first five years of a child’s life.
The Government has already tried to soften the harsher measures officially unveiled on Sunday, by flagging the new tax for the booming mining industry and the hefty levy on cigarettes.
The changes will slug big mining companies as much as $10 billion a year to pay for the superannuation changes, as well as help fund a cut in company tax and concessions for small business.
Taxpayers can also expect:
• Tax cuts already promised in the last budget to go ahead this July, offering $70,000-a-year wage earners an extra $20 in their pocket each week, but no further tax cuts;
• The option of a one-step instant tax return for those taxpayers who have few deductions to claim;
• Company taxes to fall to 28%; and
• Small business to receive instant tax deductions on new purchases of equipment up to a cap of $5,000.
And despite a raft of controversial recommendations in the Henry review, the Government’s response will be far less radical – deciding instead to remain conservative:
• Negative gearing on investment property stays to encourage buyers;
• No introduction of a road congestion tax designed to cut city traffic;
• No change to the 10 per cent GST;
• No change to capital gains taxes;
• Taxes on share portfolios will not be changed under the shake-up;
• Petrol taxes will remain the same;
• Part of the new “Resource Super Profits Tax” on mining companies will also be permanently diverted to pay for new infrastructure … roads, rail lines and faster Internet;
• Cigarette prices have increased this week, but there will be no change to alcohol taxation; and
• There will be no change to the amount of tax paid on interest from savings accounts.
The tax changes will be designed to take effect over the next 10 years.
The mining companies are furious with the changes, but on the whole the changes represent a safe set of reforms for voters.
Mr Swan stood firm on the mining tax increases yesterday, saying companies were now paying less tax as a percentage of profits than they had in the past: “Mining companies have been extremely profitable in recent times. This is about a fair share … and it’s about making sure all Australians share in that growth.”
But Mr Swan had better news for the nation’s small businesses – he hinted that they would be in for taxation relief from Canberra. The Treasurer pointedly praised Australia’s small businesses for keeping their doors open during the global financial crisis: “They also deserve reward for their efforts,” he said.
The superannuation changes were flagged by Dr Henry because the $1 trillion pool of superannuation that Australians have built up is becoming increasingly important to national stability. The money was part of the reason Australia fared far better during the global financial crisis than many other developed countries: “This pool of savings has been a buffer for the Australian economy through difficult times,” Prime Minister Kevin Rudd said last week.
This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.