What to expect tomorrow
One-click tax returns
Low-tax savings accounts
Fairer superannuation tax
Flatter alcohol tax
Resource rent tax
Re-jigged family benefits
FBT on charities
What not to expect
More compulsory super
Personal income tax cuts
Big company tax cuts
Taxing the family home
Axing real estate stamp duty
Axing payroll tax
Drinkers of fine wine will be spared the pain inflicted on cigarette smokers in tomorrow's Henry Review. In fact they're likely to find Australia's most expensive drop more than $100 a bottle cheaper. But drinkers of cask wine are in for a shock.
A move towards a single flat volumetric tax on alcohol is set to cut the price of a $620 bottle of Grange by $133 while adding $20 to the price of a four-litre cask.
The dramatic changes are some of one of many driven by the Henry Review's pursuit of simplicity and fairness at the cost of shaking things up. Its recommendations would also increase the salary bills of charities who would no longer be able to offer their employees untaxed fringe benefits, subject many more businesses to payroll tax, cut tax on savings accounts, boost superannuation tax for high-income earners and cut family payments for older children in order to boost them for preschoolers.
The review finds that while beer is sensibly taxed per unit of alcohol, wine is taxed by price with rebates for small producers. This means expensive bottles are very heavily taxed, some bottles attract no alcohol tax and cask wine is taxed at just 5 cents per standard drink...
The proposed flat tax set at the packaged full-strength beer rate of 39 cents per standard drink would push up the price of a four-litre cask from $15 to $35 according to calculations from the Australian Hotels Association while taking $6 off the price of $54 Cabernet Sauvignon.
A middy of draft beer would climb in price 28 cents while $9 would be sliced off the price of a $43 bottle of Johnnie Walker Red Label whisky. Alcopops, recently subject to a tax increase, would come down in price.
In recognition of the disruption the change would cause it is likely to be phased in over a number of years.
Bank accounts will benefit from another attempt at simplicity more quickly. The review has found that the real effective tax rate on interest earned in bank accounts approaches 50 per cent for a middle earner on the 31.5 per cent rate. By contrast the real effective tax on earnings from shares is around 10 per cent, and minus 30 per cent if they are bought with borrowed money. The effective real tax rate on superannuation approaches minus 40 per cent.
In order to even things up and also advantage saving the review will cut the rate of tax on bank interest while sharply increasing tax on superannuation for high income earners. At present one third of super tax concessions go Australians earning more than $180,000. Australians earning less than $35,000 get next to nothing.
The review flatly rejects pleas from the superannuation industry to lift compulsory contributions but endorses a separate small compulsory levy to fund a national disability insurance scheme. It recommends measures to encourage so-called "longevity insurance" under which super payouts are turned into guaranteed lifetime fortnightly payments.
Insurance itself should become free of all taxes other than the GST in the committee's view. It believes high stamp duties discourage the poorest Australians most in need of insurance from using it.
Stamp duty will remain on real estate transactions. In return the family home will remain exempt from capital gains tax. But capital gains arrangements for rental properties face a shake up.
The showcase for the simplicity the review has in mind will be the one-click or optional tax return. Australians will simple tax affairs will no longer need to complete paperwork or provide the Tax Office with information. The number of different welfare benefits would shrink and family benefits would be reconfigured to pay the most in the pre-school years when high childcare costs mean expenses are their highest. The new arrangements would be directed to getting Australians off disability benefits and in to work.
Businesses will face an extension of payroll tax rather than its abolition as many had hoped. The review finds the tax is a good one and that most of its problems come from exemptions and different rates in different states. In return businesses may be relieved of the need to calculate and pay fringe benefits tax. The review has considered making it payable in the hands of employees rather than their employers and recommends for the first time imposing FBT on the employees of charities. If the government does adopt the recommendation to extend the tax to the charities it is likely to give notice and phase the change in.
Despite early enthusiasm for a hefty cut in Australia's 30 per cent rate of company tax, the review now believes that only a small cut is needed in the changed circumstances that follow the global financial crisis. Mining companies would be hit with an extra Resources Rent Tax when their profit climbs into so-called super-profit territory as are presently most offshore miners, who face a supertax of 40 per cent in addition to company tax.
The government's decision to schedule the release the Henry Review and its response on Sunday when worldwide markets are closed has intensified speculation it will introduce such a tax.
Published in today's SMH and Age
. Wednesday column: We'll still be mining
. The Henry Review is imminent
. Guess what? Henry examined the evidence