Friday, March 29, 2024

Call to include house in means test

The concept of including the family home in the means tests for the Age Pension has raised its head again, with a report from the Australian National University (ANU) on Monday calling for the measure to be introduced among a raft of tax changes aimed at making the tax system in Australia more equitable.

The report, titled The taxation of savings in Australia, also urges the scrapping of dividend imputation credits, replacing them with a flat tax rate on dividends.

The idea of including the family home in the assets test for the Age Pension is not new, but it is extremely unpopular.

YourLifeChoices polled members on the topic last year and an overwhelming 85 per cent of the 2481 respondents said the family home should not be part of the assets test.

Most responses were highly critical of the concept of including the family home in the assets test for an Age Pension – and many were critical of the assets test generally.

Professor Robert Breunig, chair of the Tax and Transfer Policy Institute (TTPI) at ANU and co-author of the report, said the Australia needed to address growing inequity across the generations.

“We are calling for the replacement of dividend imputation with a flat tax rate on dividends, removing stamp duties, which significantly distort decisions about when to move house, and including owner-occupied housing in means tests for pensions,” Prof. Breunig said.

“This might seem radical, but in reality the reforms are reasonable and would bring us closer to the optimal tax system Australians deserve and this nation needs.”

The report calls for a new system that taxes savings at a low, flat rate and which is separate to taxes on labour income.

“As review after review has shown, Australia’s current approach to taxing savings is a mess at best and a serious driver of intergenerational inequality at worst,” Prof. Breunig said.

“Some savings tax arrangements are progressive, taxing higher incomes more heavily, and some are regressive. Some favour the old but are punitive for the young.

“Our current tax arrangements are inefficient, inequitable and distort the flow of savings across our society and economy. The system is complex and encourages Australians to engage in costly tax planning schemes.

“Our new report not only outlines the ideal tax system – a dual income tax system – but steps out how we can get there. The beauty of a dual income tax system is that we can move there in stages.”

According to the authors, the taxation of savings should be based on four key principles:

  1. savings should be taxed at a lower rate than labour income
  2. most types of savings should be taxed at the same rate
  3. savings income should be taxed independent of the tax rate on income from other sources
  4. taxation of savings should focus on income generated from savings and not the total stock of assets.

 

The report also outlines four key reforms that can be made to Australia’s tax system in the short term, including removing stamp duties and including the family home in the means tests for the Age Pension.

“The taxation of savings is politically contentious with strong lobby groups defending particular savings arrangements, whether that is the untouchable nature of owner-occupied housing, dividend imputation or superannuation concessions,” Prof. Breunig said.

“Yet, it makes no sense to consider the tax implications of these individual savings options without also taking into account how they shape the competitive landscape, how they influence the choices of individuals and how they contribute to the efficient mobilisation of savings across the economy as a whole.”

Do you think the family home should be included in the means tests for the Age Pension? Are you frustrated that this is constantly raised as a solution to tax problems?

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Related articles:
https://www.yourlifechoices.com.au/health/covid19/assistance-you-should-know-about
https://www.yourlifechoices.com.au/explaining-the-pension-supplement
https://www.yourlifechoices.com.au/government/centrelink/when-pensions-are-treated-differently

Ben Hocking
Ben Hocking
Ben Hocking is a skilled writer and editor with interests and expertise in politics, government, Centrelink, finance, health, retirement income, superannuation, Wordle and sports.
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