Some of the biggest bogey-man issues in the Australian taxation debate, such as the cost of superannuation tax concessions and the impact of negative gearing, have been overblown and there is a need to reset the debate parameters, according to a new analysis released by Deloitte.
The report, 'Shedding light on the debate: Mythbusting Tax Reform', released today makes clear that while the cost of superannuation tax concessions are being overblown, there is a need to inject greater equity in circumstances where they are weighted to middle and upper income earners.
It suggests one example of a better super tax system would be an updated and simplified version of the contributions tax changes proposed in the Henry Review - where everyone gets the same tax advantage out of a dollar going into super, with a concession of 15 cents in the dollar for both princes and paupers.
"Making the tax incentives for contributing into super the same for everyone also comes with a pretty big silver lining," the Deloitte report said. "As current incentives are weighted towards the better off, there is a tax saving from making super better - a reform dividend of around $6 billion in 2016-17 alone.
"Even better, because this is a change to the taxation of contributions - when the money goes in - it avoids the need for any additional grandfathering. Nor does it add extra taxes to either earnings or benefits," the Deloitte report said. "And because the incentives are simpler and fairer, the current caps on concessional (pre-tax) contributions can also be simpler and fairer. They could be abolished completely for everyone under 50, and the cap could be raised for everyone else (subject only to a safety net of a lifetime cap). That would put super on a simpler, fairer and more sustainable basis."
On the question of negative gearing, the report said it was neither evil nor a loophole in the tax system, and that its current high level of use was a product of low interest, easy access to credit and heated property markets.
Where capital gains tax treatment is concerned, the Deloitte report said that the overall objective was correct but that it had become skewed and some adjustment was necessary.