Joe Hockey, Liberal Treasurer, announced some important tax changes today to help clear a backlog of measures announced but not yet legislated. Some date back to 2004 (and one to 2001) under the Howard and Costello government. Let’s look at a few of them to see who is conducting class war.

The most obvious one is superannuation. The Liberal government announced it would not proceed with Labor’s proposal to tax superannuation payments of more than $100,000 at 15%. Currently they are tax free. The mass media were screaming ‘Tax slug on super dumped!’

Yeah, that is true for those whose super payouts were going to be more than $100,000 a year. This is people with super fund balances of about $2 million (assuming a five percent rate of return). You know how many people that would have caught?  16000 super rich people.

According to Madeleine Heffernan in the Sydney Morning Herald the average super balance for women is $112,000; for men it is $198,000. In other words people whose balance is ten times the average for men will not pay tax on their superannuation payments.

An even better comparison is with people who are just about to retire. According to AMP for people aged 60-64 the average superannuation fund account balance is $75,000. So basically the government has decided to abandon a tax on a few very very rich people whose account balances are 25 times greater than those in comparable situations.

This largess for the super rich will cost the revenue over $300 million a year.

By the way men have higher super balances because they earn on average 17% more than women and because they don’t have interrupted work lives having children or by and large taking time off work to look after them.

This dumping of a small tax on super rich superannuants is part of a wider problem.

The pension and superannuation systems combined give much more government support to the rich than to workers and the poor.  Here is one of those ‘boring’ graphs, from Treasury’s 2012 Distributional Analysis of Superannuation Concessions, which shows, to use Treasury’s words, that ‘the top 1 per cent of income earners receive the most combined support.’

Every year Treasury puts out a tax expenditure statement showing the revenue forgone by not taxing or concessionally taxing many types of income. Treasury estimates that in 2015/16 the revenue forgone though the superannuation tax concessions, at almost $45 bilion, will be a little greater than the amount we spend on the age pension.

About $15 billion, or one-third of that revenue forgone, will go to the top ten percent of income earners. The interaction of the tax and superannuation systems is effectively a huge government support system for the very rich.

The Government is also going to abolish the Minerals Resource Rent Tax and with it the spending measures Labor had attached to the revenue that was supposedly going to be raised by the tax.

The baby bonus of $410 a year for each primary school student and $820 per year for each high school student will go.  That’s a cut to the living standards of 1.3 m less well off Australians.

Labor also used the MRRT money (money which didn’t materialise so now comes out of general revenue) to pay those earning less than $37,000 up to $500 on the tax paid on superannuation guarantee contributions. Effectively the government paid the amount of tax each low income earner had had taken out of contributions back into the fund, up to $500.

The Liberal government is going to scrap this up to $500 superannuation contribution. For those 3.6 million workers earning less than $37000 a year their super tax will go up.

No tax for those 16000 multi-millionaires whose superannuation income is more than $100,000 a year and extra superannuation contributions tax on those 3.6 million whose wage and other income is less than $37000. Class war anyone?

Let me also deal briefly with thin cap, which is not a diet but a tax regime to supposedly prevent debt loading to wipe out or reduce Australian tax liability for both foreign and Australian multinationals.  Without going into the detail here’s how the ATO describes it:

The thin capitalisation rules apply to Australian entities investing overseas, their associate entities, foreign controlled Australian entities and foreign entities investing directly into Australia. Under the rules, the amount of debt used to fund those Australian operations or investments is limited. The rules operate to disallow the debt deductions an entity can claim against Australian assessable income when the debt used by the entity to fund its Australian assets exceeds certain limits.

If you debt exceeds 75% of the net value of your Australian investments (this threshold is higher for certain financial entities), you may not be able to claim a portion of your debt deductions.

Labor was going to change the rules so that the current very generous debt to equity ratio would have been reduced a little. The Liberals will continue with that. What they are scrapping is the repeal of section 25-90 which, contrary to ordinary tax principles, allows deductions against certain untaxed foreign income repatriated to Australia. Not proceeding with scrapping section 25-90 will cost $600 million.

Priorities eh? Scrap the school kids bonus and increase the superannuation tax on those people earning less than $37000 while at the same time saving multi-millionaire superannuants about $20,000 on average in tax a year and multinational companies $600 million a year.  I repeat: Class war anyone?

Tax & Class War