Thursday, October 06, 2011

Kochie, Newstart, Super, the whole damn summit


Negative gearing was already on the nose. Then Kochie spoke.

Property manager Eddie Kutner of Central Equity Ltd had just finished putting the case for the rule that allows investors to write off losses made on rental properties against other income before selling the property and pocketing a capital gain taxed at only half their marginal rate. It was “a responsible part of providing accommodation, a very defensible proposition”.

Then Kochie spoke. Finance journalist David Koch is better known these days as the co-host of Sunrise on Channel Seven. He was at the summit as a community representative.

He drew breath.

“Negative gearing on an unproductive asset? Does it just go on for time immemorial or is it time to actually put some limits on it - to say, okay for the first five years, but if it’s not producing an income after that why are you there?”

“It’s done purely for the attraction of letting the taxman pay half. I’m not saying get rid of it all together, but there’s got to be a limit - it just can’t go on forever"...

“Somebody with money in a savings account gets taxed at double the rate. That’s the inequity of it, it skews things ludicrously for people who aren’t as informed as most of us here.”

Mr Australia had spoken. No-one returned to the topic. Earlier Grattan Institute economist Saul Eslake turned Ms Gillard and Mr Swan stony-faced when he said the practice transferred $4.5 billion per year from ordinary taxpayers to affluent ones.

“But there are now 1.7 million of them, and they vote,” he added. “Which is why the subject is off the agenda for both major political parties.”

It was not true that the brief suspension of the practice by Treasurer Paul Keating in the mid-1980s led to an surge in rents. “It is simply not true no matter how often the defenders of negative gearing say it.”

Nine out of ten negative geared properties were existing units or houses rather than new ones. Rather than boost the supply of properties negative gearing pushed up the price of existing ones.

“The United States has never had negative gearing yet they have never had a rental vacancy rate of less than 5 per cent. We have negative gearing and we have never had a vacancy rate in rental properties of over 5 per cent,” Mr Eslake said.

Published in today's SMH and Age


So much as the Newstart unemployment benefit shrunk relative to actual living costs that the cheapest capital city accommodation now eats up all of it but $16.50 per day, the tax summit was told.

Former OECD economist Peter Whiteford of the Social Policy Research Centre at the University of NSW told the summit the cheapest one-bedroom accommodation in the Sydney region could be found at Wyong on the central coast.

In Melbourne equivalent would be Melton South on the north west fringe.

“If you had an unemployment payment and rent assistance, after you paid your rent you would have $16.50 a day for everything else and looking for work,” he said.

Fourteen years ago before Newstart and the pension were separately indexed the unemployment benefit was 91 per cent of the single pension. It’s now 65 per cent and projected to fall to 33 per cent unless its indexation rate is lifted.

Former productivity commissioner Judith Sloane said the gap had become “enormous”.

“We understand the dole was to be a short-term payment, but if people are unemployed for a long period, adequacy and the ability to find employment rbecomes important,” she said “What seemed like a good idea of having different indexation systems has led to an enormous gap that can’t go on.”

Australian Council of Social Service chief executive Cassandra Goldie said it would cost $1 billion to lift unemployment benefits to a more reasonable level.

Community services minister Jenny Macklin said she understood the concerns but hoped delegates understood “the budgetary issues that we face”.

Published in today's SMH and Age


Treasurer Wayne Swan has committed himself to work to remove one of the worst drawbacks of Australia’s superannuation system - what happens when super payments run out.

Summit delegate David Cox from Challenger Financial Services told the summit an increasing number of Australians were living longer than their superannuation annuities.

“If they have a superannuation balance $100,000 or so and are prepared to live modestly, it will last a long time. But if they want to live comfortably it is going to run out,” he said.

“The statistics are chilling. Even someone attempting to live comfortably on half a million will find it runs out before their life expectancy. The old age pension is not a very comfortable way to spend the latter part of your life.”

“Most people don't appreciate how long they are going to live. We would like to offer deferred annuities that would kick in after life expectancy, but the rules make it too difficult.”

“For $10,000 a 65 year old could buy an annuity that would pay half the pension on top of the pension after life expectancy. Our modelling shows it would save three per cent of age pension and age care costs.”

Mr Swan said he had heard the discussion and with assistant treasurer Bill Shorten would work with the industry “to do more in this area”.

Economic consultant Nicholas Gruen said the planned increase in super contributions from 9 to 12 per cent of salary would make it harder for young people to get the deposit for a house.

“It makes sense for people in their 20s and 30s to accumulate savings in the form of a housing deposit. I suggest that at some stage as we increase super we allow withdrawals from funds for housing deposits rather than the kind of Mickey Mouse system we have at the moment, where super makes it hard for people to save,” he said.

Published in today's SMH and Age

...the whole damn summit

Wayne Swan has ensured the two-day tax summit won’t go to waste.

By agreeing to set up a $1 million per year Tax Studies Institute linked to universities he has created a body that will prod him and his successors about the ideas raised at the summit for decades to come.

The Institute is a recommendation of the Henry Review - number 134 - but Ken Henry feels more strongly about it now.

He told the summit that while preparing the review his team had assumed that much of what was clear to them would also be clear to the public.

“I have to say, in retrospect, rather less should have been taken for granted,” he said.

The only way to get change that will stick is to talk and keep talking, to publicly pressure the government even when it has been convinced.

Rather than being foisted on the public as was the first mining tax, the next set of visionary ideas need to become “so well accepted they seem banal”.

The need to become so well understood “everybody is worried sick by them and the approaches to dealing with them appear merely natural.”

The big challenges will lie in lifting the tax take while cutting the company tax rate. The trade-off for people worried by a much lower company tax rate would be a dramatic reduction in tax breaks, most used by the well-heeled.

Melbourne University associate professor, Ann O’Connel suggested abolishing all fringe benefits tax arrangements and taxing everything as income. It wouldn’t have been possible in earlier years. But these days computer records make it easy to work out what every benefit is worth.

It will only happen if there is continual prodding from a body outside of government.

Without the Productivity Commission and its predecessors we would probably still be paying far too much for cars. With luck, the Institute will do the same for the way we pay tax.

Published in today's SMH and Age

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