The 2017 Federal Budget will be announced in a few weeks and Professor Robert (Bob) Deutsch, the Tax Institute’s Senior Tax Counsel, has ranked his predictions:
- Reduction to the 50% Capital Gains Tax discount
- Tackle the illegal cash economy
- Increase in the Medicare levy
- Changes to superannuation.
Capital Gains Tax
Reducing the 50% CGT discount for individuals and trusts (33.3 % for superannuation funds) is an option that the coalition is considering. There is also conjecture that the reduction would be limited to property investments. Any decrease to the discount would provide revenue for the government’s budget and diminish the federal opposition’s argument for restricting negative gearing on investment properties. This is a highly politicised issue with the general perception being that the dual tax considerations of negative gearing and the CGT discount are contributing to the speculative froth impacting housing affordability.
While the Coalition is unlikely to ‘carve out’ the activity of property investment from the general deductability rules (a change to negative gearing) it is seriously considering the aforementioned reduction to the CGT discount.
Cash Economy
Media sources report the Turnbull government, like many of its predecessors, plans to crack down on the illegal cash economy. The Board of Taxation Chairman, Michael Andrew, estimates roughly $10 billion of economic activity is untaxed, and another $4 billion to $5 billion is lost through having been paid out as welfare payments to people who did not correctly report their income. The Board of Taxation will be making recommendations on how to deal with the problem.
Medicare Levy
The call for the increase in the Medicare levy has also been covered by the press. The Australian Medical Association has made submissions to the government to return to it the additional revenue generated by the increase. Currently individuals are paying 2% of their taxable income to the Medicare levy which raises about $15 billion per year. Of this,
- $15 billion per quarter is allotted for the National Disability Insurance Scheme
- $11 to $12 billion is then left to cover Medicare costs which are presently around $22 billion per annum.
The Australian Medical Association states that while the increase would provide much needed funds for the health care system "it is by no means a solution to our total health funding needs, which still need to be addressed".
Superannuation
Professor Bob Deutsch believes that the government will be making more adjustments to superannuation funds however his view is the less that is done to super the better. Superannuation, as it stands, is a complex area of taxation and administration with the seemingly constant changes by current and former governments shaking the public’s faith and perception of what should be a solid pillar of the economy.
As this is a political process we shall only know the ‘facts’ after 7:30pm on Tuesday, 9 May 2017.
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