John Howard Rejects Call To Close Tax 'Loopholes' For High Income Earners

by Mary Swire, for LawAndTax-News.com, Hong Kong

16 April 2004

In a report released on Tuesday, the Australian Council of Social Services (ACOSS) called upon the Australian government to close several tax 'loopholes' for the country's high income earners.

According to the ACOSS analysis, there are seven key tax loopholes, representing $8.2 billion in tax breaks, which benefit only high-income Australians. These are:

• Private companies - diverting income into a private company to lower tax rates. The organisation estimates that this costs around $1.3 billion a year.
• Executive perks - such as salary sacrifice for shares - and termination payments (taxed at a low rate), which cost an estimated $300 million.
• Company cars - salary sacrificed for a company car is not fully taxed and the savings are shared with the employee. This represents a cost of around $1 billion.
• Income splitting - the splitting of earnings with a relative on a lower tax rate. ACOSS estimates that this is worth approximately $800 million.
• Family trusts - a tax reduction scheme in which income and investment tax breaks are split among family members at a cost to the government of around $400 million in lost revenue.
• Negative gearing - speculative investors borrowing and deliberately making a loss on apartments and other rental properties for the first few years while claiming a tax deduction. This practice is estimated to cost approximately $2 billion.
• Salary sacrifice for superannuation - high income earners sacrifice salary for superannuation contributions taxed at a flat rate of 15%, at a cost of around $2.5 billion.

Speaking on Tuesday, Andrew McCallum, President of ACOSS suggested that.

"It's time to close down tax loopholes for the wealthy and give the benefits to the people who need it most."

However, in an interview with ABC Radio, Australian Prime Minister, John Howard expressed his disagreement with the position adopted by ACOSS, observing that:

"What they regard as a loophole, many other people would regard as an incentive." He continued:

"Unless you give people incentives to invest and take risks and employ people, you don't generate wealth and you don't, therefore, generate the tax revenue that is needed to pay the pensions and to look after our health system and to provide GST revenue to the states to look after roads and police and public schools."

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