Monday, May 10, 2010

Could "less tax" be the Budget surprise?

A tax cut on bank interest to as low as 18 per cent and simple "one click" tax returns are two of the key reforms likely in tomorrow's "no frills" federal budget expected to return Australia to surplus two years earlier than previously projected.

In releasing the government's response to the Henry Review a week ago Treasurer Wayne Swan said he was "attracted" its ideas for making tax time simpler and improving incentives to save.

Asked yesterday whether either reform would be unveiled Tuesday night he said "you'll just have to wait until we see the Budget".

The Review recommends only 6 of each 10 dollars earned in bank interest face tax.

Already-scheduled tax changes mean from July Australians earning $37,000 to $80,000 will face a marginal rate of 30 per cent with Australians earning up to $180,000 paying just 37 per cent. The recommendation would see those Australians paying effective tax rates on interest of 18 per cent and 22 per cent...

The review has also recommended extending the discount of income from rents, but only after other reforms to the housing sector.

Tax returns would become "one click" affairs for the 56 per cent of Australians with simple tax affairs who would be sent pre-filled forms and asked to accept a standard work expense deduction. A further 25 per cent of taxpayers would merely need to answer one additional question in order to get their refund.

Wayne Swan committed himself to action early late year telling a tax conference, "as matter of principle, working families should not have to pay hundreds of dollars per year to accountants to fill out their tax return".

Other measures expected include a further $2 billion in health funding to pay for changes to primary care, more nurses, and system of electronic health records. There will also be a boost in training for unemployed people as part of a program to boost productivity.

Mr Swan committed himself to paying for new measures by cutting existing ones, saying in many ways this would be his "hardest Budget yet – funding health reforms and other commitments without adding a cent to the deficit".

"We're not engaging in some Peter Costello - John Howard spendathon in election year. There's simply no room for that. We are offsetting all new spending and that will be there for all to see."

Finance Minister Lindsay Tanner yesterday announced savings on travel spending worth $160 million over four years achieved by new contracts with the airlines that bought out frequent flyer points.

Shadow Treasurer Joe Hockey mocked talk of savings saying "when the Treasurer says it's a boring Budget make sure you hang on to your wallet, expect new and higher taxes".

The Budget will forecast an almost immediate return to healthy economic growth and a return to Budget surplus in 3 to 4 years rather than the 6 predicted in the last budget.

"We are emerging from the global recession in better shape than just about any other advanced economy," Mr Swan said. But the impacts of the global recession will linger. Companies accumulated significant losses and they will continue to be a drag on the return of revenues."

Market economists are forecasting a budget deficit of $48 billion this financial year, down from the $58 billion predicted in the last Budget, and a deficit of $34 billion in 2010-11, down from the $57 billion predicted last time.

Published in today's SMH and Age 

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