Let's Talk...about Australian Tax Reform

Like it or loathe it, taxation plays a huge role in the Australian economy, and the proposed government changes to taxation on savings in the 2016 budget hold huge implications for students and young professionals. MBS student Su-Kim takes us through 'Let's Talk...' a panel discussion on Australian Tax Reform.

Let’s Talk…Australian Tax Reform (Wednesday 27 April 2016) was hosted by the Melbourne Business School Student Association and Professor Nasser Spear, Deputy Dean of the Melbourne Business School to help students navigate potential governmental changes to taxation on savings in the 2016 Budget.

If you are a current Masters student, have a think about your future for a minute. Over the next decade you’ll be getting a job, moving up the corporate ladder, earning and saving, starting your superannuation, maybe investing in stocks or property…what is the constant bedfellow to these financial milestones in life? Yes – you guessed it, tax!

The Let’s Talk…Australian Tax Reform panel speakers included John Daley, CEO of the Grattan Institute, Professor Ann O’Connell, a Professor at the Melbourne Law School specialising in taxation, Charlotte Xu, Director at Ernst & Young, and Lennard Iosif, a student at Melbourne Business School. Jacob Workman, Manager of Education and Programs at the Centre for Workplace Leadership, moderated the panel.

Speaking about the theory behind taxation of savings, Daley shared insights into the different vehicles of savings that people use and the tax rates on the various kinds of assets. He dispelled the common-held myth that superannuation is one of the biggest vehicles of savings, instead pointing out that the family home and other property on average holds over half of the household wealth.

Professor O’Connell took the audience through the current state of superannuation taxation in Australia, pointing out that the Australian system has grown over the past 100 years, which has resulted in an inconsistent and fundamentally flawed taxation system projected to cost the Australian economy $50b in 2016-2017. She presented statistics on the spread in superannuation balances across Australia, highlighting a significant gender gap.  Men, on average, have almost twice as much super as women ($98,535 and $54,916 respectively) (AFSA 2014-2015). While this gap can, to some extent, be explained by different work patterns for men and women, it is still important to note this drastic difference.

Xu covered the history of the capital gains tax (CGT) discount and how it came about in Australia, explaining that the current system of CGT concession was created in an attempt not only to stimulate investment but also to simplify the complex system of reporting capital gains. Workman brought up a personal example whereby he gained from the CGT tax discount, questioning Xu as to how the tax concession works as an incentive for individuals to invest in an asset with capital gains. Xu pointed out that most people invest not based on tax discounts available, but rather on the gain they expect to receive and things like the CGT discount are often just a nice added bonus to investors, rather than a primary reason for investing.

Iosif introduced the topic of negative gearing, providing insights from leading economic consulting firms including Deloitte Access Economics. He presented both the arguments for and against negative gearing in terms of housing affordability, explaining that negative gearing does artificially inflate house prices (contrary to some reports in the media) but also helps to reduce rent prices, which is a benefit for most students.

Many students were interested to hear what the panel’s thoughts were on the best way to tackle tax reform to ensure the most equitable solution for all members of society. Grandfathering, or limiting changes to negative gearing to new properties, was quickly brought up as a potential part of policy change that could further perpetuate intergenerational inequality.

Grandfathering is great for the grandfathers, but it’s terrible for the grandchildren. John Daley

However, Daley pointed out that in the case of housing affordability, other factors (including low-interest rates, high immigration rates and decreasing availability of land) were impacting house prices more so than negative gearing.

The panel agreed that the CGT tax concession was incredibly generous; with both Xu and O’Connell noting that many view the CGT tax concession as too good to be true and expect reform in that area. Removing the tax-free lump sum withdrawals (up to $185,000) from superannuation and moving the taxation point to the benefit stage of superannuation was touted as a potential option for reform.

As future business leaders and policy makers, students must remain engaged in these issues to help shape and influence policy at all levels of government to create a more effective, efficient and equitable taxation system for Australia.

“We should place great importance on the rate of taxation on savings as the impact of these issues will be compounded over the decades ahead of us,” Lennard Iosif said.

With a much clearer idea of the different rates of taxation on three areas of saving within the Australian economy, the networking session at the end of the event was filled with chatter about the release of the budget on May 3.

By Su-Kim Macdonald

Su-Kim is the President of the Melbourne Business School (MBS) Student Association and is currently studying the Master of Commerce (Management).

The MBS Student Association was founded in 2008 by postgraduate Business and Economics students, and today represents the 2600+ students at the Melbourne Business School. The mission of the MBS Student Association is to add value to the experiences of MBS students through the provision of social, professional development and volunteering events, allowing students the opportunity to expand their networks and develop valuable skills for their career and act as a key stakeholder for MBS students in policy discussion.