CARBON TAX: Personal tax changes tinkering rather than reform, experts say

Experts say the Government’s changes to personal tax thresholds are more tinkering than bold reform and have been driven by the desire to get the contentious carbon tax across the line rather than follow through on Henry Tax Review recommendations.

“Is it true reform? No,” Paul Drum, CPA Australia head of business and investment policy, says.

Robert Jeremenko, senior tax counsel at the Taxation Institute, says real tax change is about congestion, abolishing state taxes, looking at the transfer system and alcohol taxation.

Under the carbon tax plan announced yesterday individuals earning up to $18,200 will pay no tax, tripling the current tax-free rate.

Taxpayers earning less than $80,000 a year will receive an average tax cut of $379 a year but cuts drop for those earning more than $80,000, depending how many children a family has.

Jeremenko says there’s still some work to do on meeting the Henry Tax Review’s calls to slice the number of effective tax rates but yesterday’s announcements are good news for those on low incomes.

“The changes here have a positive effect for low income earners. Say mum’s coming back to work after having a child and working part-time, she might not need to enter tax system,” he says.

“But at the upper end, for $80,000 plus, it’s hardly a benefit.” 

Gavan Ord, business policy adviser at CPA Australia, suspects the changes were triggered by political necessity to get the carbon tax across the line rather than a desire to follow through on the Henry Review.

“I think they worked backwards and thought “how much compensation do we want to give?’ ” Ord says.

Ord is keeping an eye on how the tax will impact on consumer behaviour, as households and business weigh up the competing claims by Labor and the Coalition.

“People hearing the Government saying they’ll be fully compensated and the Opposition saying it’s the end of the world, so the unknown factor for me is how it will impact on consumer behaviour,” Ord says.

Ord noted that for the 1.7 million SMEs which pay tax on personal income tax rates any reduction is good news.

Jeremenko says the carbon tax issue needs to be fleshed out at the two-day tax forum in October.

“We’re saying to Government and Treasury it needs to be put at the top of the agenda,” Jeremenko says.

He welcomed the Government’s decision to make carbon permits GST-free but says questions remain.

“What guarantee is there that states won’t whack stamp duty on permits?” he asked.

Drum says the increase in the tax-free threshold for individuals to $19,400 is in line with Henry’s calls to increase it to $25,000 but in practice the rise will not be as dramatic as the headlines suggest.

He says keeping in mind the low-income tax offset, the tax-free threshold at the moment is $16,000 not $6000, suggesting an increase of just $2200.

If the effective tax-free threshold was really $6,000 Drum says, an increase to $18,000 would cost the Government about $25 billion.