|
|||
|
|||
|
 |
|
|
Pensioner |
Rebate level |
Shade-out threshold |
Cut-out |
|---|---|---|---|
|
Single |
1,260 |
11,700 |
21,780 |
|
Couple (each) |
896 |
9,880 |
17,048 |
|
Couple (separated by illness) |
1,197 |
11,385 |
20,961 |
For 1997-98, the pensioner rebates will enable single pensioners to earn non-pension taxable income up to $100 per fortnight, and pensioner couples to earn combined non-pension taxable income up to $176 per fortnight, without paying income tax. These income levels are based on the pension income test free amounts.
The pensioner rebate is available to recipients of the following social security pensions: the Age Pension, the Disability Support Pension (taxpayer of Age Pension age), the Disability Wage Supplement (taxpayer of Age Pension age) absorbed by the Disability Support Pension (from 1 January 1998), the Wife Pension (taxpayer or spouse of Age Pension age), the Parenting Payment (single) (formerly the Sole Parent Pension), the Widow Pension (Class B), the Carer Payment formerly the carer Pension (taxpayer or caree of Age Pension age), the Mature Age Allowance (where received before 1 July1996) and the Mature Age Partner Allowance. It is also available to recipients of the following service pensions: Age Service Pension, Invalidity Service Pension (taxpayer or spouse of Age Pension age), Partner Service Pension (taxpayer or spouse of Age Pension age) and Carer Service Pension (taxpayer or caree of Age Pension age).
The low income aged persons rebate is available to persons at or above age pension age (currently 61 years for women and 65 for men) who have taxable income below the pensioner rebate cut-out threshold. The low income aged persons rebate ensures that an eligible person who has taxable income up to the pensioner rebate shade-out threshold, will not have a tax liability. This rebate level will be equivalent to the pensioner rebate level for a given level of taxable income, so that a single self-funded retiree with an income of $11,700 or less and a partnered couple with an income of $19,760 or less will not have a tax liability.
It must also be noted that pensioners, low income aged persons, or beneficiaries with some income tax liabilities will be able to utilise the low income tax rebate, which is available to all taxpayers with taxable income less than $24,450 in addition to the above rebates. The maximum rebate is $150, reduced by four cents in every dollar by which the taxpayer's taxable income exceeds $20,700.(13)
Financial Impact
The Explanatory Memorandum states that the budgetary cost of these measures is $0.08 billion in 2000-2001, $0.08 billion in 2001-2002 and $0.08 billion in 2002-2003.(14)
Tax exempt status of bonus payments to older Australians
The amendments to the Income Tax Assessment Act 1997 by Item 3 to Schedule 1 to this Bill will ensure that a bonus payment made directly to an eligible person under the A New Tax System (Bonuses for Older Australians) Act 1998 will be treated as exempt income under proposed section 52-130.
Abolition of the savings and investment income tax offset
Subdivision 61-A of the Income Tax Assessment Act 1997, provides for a savings tax offset designed to give assistance to individual taxpayers who save or invest, and encourage potential savers or investors. Item 5 of Schedule 2 repeals subdivision 61-A and Item 6 deletes the definition of savings and investment income in subsection 995-(1) which applied to the operation of subdivision 61-A. Item 7 provides that the amendments made by Schedule 2 apply to assessments for the 1999-2000 income year and later income years.
Increase in rebates for low income aged persons and certain pensioners
Item 3 of Schedule 3 inserts proposed subregulation 150AB(2A) to extend the definition of rebate amount for low income aged persons so that the rebate is increased by $250 (for a single person) or $175 (for each of a couple). Item 6 of Schedule 3 inserts proposed subregulation 151 (3A) to make a similar extension of the definition of taxpayer's rebate amount and its amount for certain pensioners. The new definitions will apply to assessments for the 2000-2001 year of income and later years of income.
Item 8 of Schedule 3 provides that the amendment of the Income Tax Regulations by Schedule 3 does not prevent the amendment or repeal, by regulations, of the Income Tax Regulations as amended by this Schedule. It is therefore open to the Government to amend the Income Tax Regulations so as to withdraw the additional rebate amounts for the 2000-2001 year of income and subsequent years either directly or indirectly by varying the formula for calculating the rebates. Although the additional rebates are introduced as part of the New Tax System and much has been said of the need for all the States to agree to increase the rate of GST which has been initially fixed at 10 per cent, the terms of Item 8 is an acceptance that the plenary constitutional powers given to the Commonwealth to enact laws relating to taxation under section 51(ii) of the Constitution cannot be circumscribed in any way which is not written down in the Constitution. The writer takes the view that there is no provision in the Constitution to require the Commonwealth to consult the States to either vary the Income Tax Regulations or the provisions of the:
which will initially fix the rate of GST at 10%.
Withdrawal of the Savings Offset Scheme
When the Savings Tax Offset scheme was proposed by the Treasurer in the 1997-98 Budget Speech, the general criticism was that as it was not means tested it opened the way for those who have already saved to claim the rebate regardless of their income or assets. The Australian Council of Social Service criticised the proposal as the concession was beyond the reach of low wage earners and social security recipients who would not be in a position to contribute $3,000 per year to superannuation or have other savings amounting to between $50,000 to $100,000 to be in a position to claim the maximum offset of $450. It added that the main beneficiaries will be high income earners and wealthy retirees.(15) Also, since it went to those with income from past savings the concession did not necessarily promote new savings.
These criticisms of ACOSS and others to the Savings Tax Offset scheme appear to have been met in Government's decision to withdraw the scheme and partially replace it with the income tested bonus payments for savings by older Australians. This leaves Australia without either the co-contribution scheme proposed by the Labor Government to boost national savings or the savings tax offset scheme announced by the Government in the 1997-98 Budget to achieve the same ends. The Government's decision to withdraw the Savings Tax Offset scheme and its impact on national savings cannot be viewed in isolation from the other measures in ANTS. The Explanatory Memorandum to the Bill sets out the reasons for the withdrawal of the Savings Tax Offset scheme as follows:
The Government decided that, in view of the major impact that the proposed across-the-board reductions in tax rates will have on incentives to work and save, and in view of the cut in marginal tax rates on saving, the savings tax offset will be terminated with effect from the 1999-2000 year of income.(16)
The personal tax cuts which is part of the compensation package on the introduction of the GST, have been criticised by ACOSS and other social welfare organisations in that they are skewed in favour of high income earners. This may in the end prevent the desired savings being made by the majority of persons in the lower income groups who are likely to be dependent upon the social security system in old age.
The Explanatory Memorandum states that the withdrawal of the savings tax offset scheme will increase revenue by $0.79 billion in 1999-2000, $2.04 billion in 2000-2001, $2.14 billion in 2000-2002 and $2.24 billion in 2002-2003.(17)
The savings offset scheme gives way to the personal income tax cuts proposed in the A New Tax System (Personal Income Tax Cuts) Bill 1998, to take effect on the introduction of the GST. The personal income tax cuts would cost $13.1 billion in 2000-2001, $13.5 billion in 2001-2002 and $14.5 billion in 2002-2003.(18)
In addition to the personal income tax cuts the A New Tax System (Personal Income Tax Cuts) Bill 1998 proposes an increase in the tax-free threshold for certain taxpayers with dependent children under the Family Tax Assistance (FTA) initiative. The total budgetary cost of the family package is $2.3 billion in 2000-2001, $2.4 billion in 2001-2002 and $2.6 billion in 2002-2003.
It was mentioned earlier that the savings offset scheme replaced the superannuation co-contribution scheme which was estimated to cost $4.5 billion in 2001-2002.
The savings offset scheme replaced the L-A-W tax cuts and it is ironic that the withdrawal of the former to give way to the personal income tax cuts marks the transmutation of the L-A-W tax cuts to usher in the GST.
After tax impact of measures in the package on Age Pensioners and Self-funded Retirees
The measures in this Bill such as the tax free bonuses for older Australians and the increase in rebates for low income aged persons and certain pensioners will assist this group in the community to offset the adverse impact of the GST. On the other hand the repeal of the savings tax offset may be expected to adversely affect self-funded retirees in particular. However the package of Bills introduced so far have compensation components in the following Bills:
In assessing the impact of the GST on age pensioners and self-funded retirees it is necessary to take into account not only the provisions in this Bill but as well the impact of the measures in the four Bills mentioned above.(19)
ANTS assesses the impact of the entire tax reform package on age pensioners and self-funded retirees in the following terms.(20)
Age pensioners
The significant increase in disposable income that occurs for pensioners over most of the income range is due to the increased adequacy of pensions and the more generous pension rebate and pension income test.
There is a fall-off in (but still positive) net cash gain between the private income levels of $23,000 and $28,600 ($38,000 and $48,000 for couple pensioners). This is because the relaxed pension income test results in some people becoming newly eligible for a part-rate pension at income levels within these ranges. The amount of pension these people receive reduces as their income increases, thereby reducing the increase in disposable income.
Self-funded retirees
At low levels of private income (ie less than $13,000 a year for single people and $21,000 for couples) self-funded retirees do not pay tax under the current or new systems. However, they gain from the Aged Persons Savings Bonus (which is assumed to generate an investment income of 5 per cent) and from the Self-Funded Retirees Supplementary Bonus of $200 a year for ten years (paid as a lump sum of $2,000).
Beyond $13,000 (or $21,000), self-funded retirees gain from the tax cuts, including the increase in the tax rebate for low income aged people. Some also gain from the increase in the cut-out point for the age pension that results from the relaxation of the pension income test. In addition, lower income self-funded retirees who own shares gain from the introduction of refundable franking credits and many self-funded retirees benefit from the new private health insurance initiative, with some offset due to the removal of the savings rebate - these effects are not included in the cameos.
The cameos referred to in ANTS are included in Attachments A to D(21) in this Digest for ease of reference.
The cameos show the government's estimates of the effects of the tax reform proposals on various pensioner and self-funded retiree households. The effect at different income levels within each of these household groups is shown. The total outcome of the tax package takes into account personal income tax cuts, increases in social security payments and the increase in the cost of living due to the impact of the GST and the removal of other taxes.
Concerns of the impact of the increase in CPI on the introduction of the GST
There are concerns that the cost of living adjustment from the GST in the cameos in ANTS may not reflect the actual price impacts following the introduction of the GST. This is of particular concern to age pensioners and self-funded retirees who will be the most vulnerable groups in the community should there be a steep increase in the CPI on the introduction of the GST.
In these cameos, the government has used a common price impact across the different household types. The size of the price impact has been estimated using Treasury's Price Revenue Incidence Simulation Model (PRISMOD). This price input-output model traces the effects of price changes through the economy until they impact on the consumers (final purchasers). An important assumption of PRISMOD is that the full effect of price changes, including the abolition of a number of indirect taxes is passed through to the consumers. Also, PRISMOD does not calculate how long it will take this price impact to flow through to consumers.
PRISMOD is just one of the models estimating the effect on the economy of the government's tax reform package that have recently received press attention.(22) For all models, the results are influenced by such factors as the assumptions that are made and the data used. Some models may give very detailed results, others more general; some may give short-run analyses while others look at the longer-term. These types of factors have to be considered when comparing the results of competing models.
A critical assumption in the modelling of the price impacts is that all of the reductions in indirect taxes are fully passed through. With this assumption the 10 per cent GST results in a 1.9 per cent increase in prices (ignoring tobacco). Consumers get all of the benefit of the indirect tax reductions and business gets none. However, if there is less then full passing through of the other tax reductions, then the CPI impact will be higher. Consumers will receive less of the indirect tax reductions but other businesses will benefit. For example, if farmers and other rural users were to benefit from the reduction in the diesel fuel taxes, there would be less passed on to consumers.
On the Government's figures full passing through of indirect tax reductions gives a 1.9 per cent CPI effect. No passing through of the indirect tax reductions would give the full GST effect, a 10 per cent CPI increase. Hence if consumers and business were to split the benefits with a 50 per cent passing through of indirect tax reductions, the CPI would increase by 5.95 per cent. If, in addition, only 50 per cent of the GST were passed on the total impact would be a CPI increase of 0.95 per cent.
PRISMOD has estimated the (one-off) common price impact, as measured by the change in the Consumer Price Index (CPI), to be 1.9% in 2001-02. The government has also conceded that the impact in the first year (2000-01) will most probably be higher than the eventual outcome of 1.9%, given the timing issues involved with the abolition of various other Federal and State taxes.
The use of a common price impact on all households has come in for criticism, as has the application of the 1.9% price impact on disposable incomes rather than actual expenditure. Evidence from other models, particularly analyses using HES data (considered invalid by Treasury), suggest that pensioner and self-funded retiree households will experience a cost of living increase of as high as 2.5%. Moreover, many of these households are spending more than their disposable income as they run down their assets in retirement. That means applying the CPI estimate to disposable income significantly understates the compensation required.
In the meantime, the government's estimates are on the table and open to scrutiny. To provide compensation packages that will treat everybody equally is impossible because, even within small groups of the population such as pensioner households, there are such diverse ranges of income mixes and expenditure patterns. It is for this reason that, in the latest review of the CPI,(23) submissions from the Australian Council of Social Service (ACOSS) and the Australian Pensioners' and Superannuants' Federation (AP&SF) did not support the application of special CPIs for pensioners or older people.
Readers are referred to the Bills Digest on the A New Tax System (Compensation Measures Legislation Amendment) Bill 1998 for further comments on Economic Modelling and the Government Modelling for ANTS.(24)
The first 16 of these Bills were introduced on 2 December 1998 and the 17th Bill was introduced on 10 December 1998.
Bernard Pulle
27 January 1999
Bills Digest Service
Information and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.
ISSN 1328-8091
© Commonwealth of Australia 1999
Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.
Published by the Department of the Parliamentary Library, 1999.
