Ken Phillips
Claw-back by stealth
The theme for this federal budget is shaping up as, ‘the government giveth and the government taketh away’. There’s much speculation and many government leaks on how the taking part is to occur. One ‘reform’ passed in March this year probably gives a good example of a major style of ‘taking’ to expect.
Changes to income tests across the ‘tax and transfer' systems became law in late March and come into force from 1 July 2009. It’s won't change the calculation of income for taxation purposes but will change income calculations for welfare and other government benefits purposes.
Among those likely to be hit are self-funded retirees or semi-retirees who also receive some government welfare or transfer entitlements. Another group is those caught in Child Support Agency arrangements. Medicare surcharge calculations are impacted along with tax and other offsets on superannuation and student loan repayment obligations.
A simple example is where an individual has a gross income of $75,000 but losses of $20,000 due to interest on borrowings used to fund a share portfolio. The taxable income is $55,000 but for the Medicare levy surcharge calculation, the $20,000 loss is ignored and the Medicare surcharge is based on $75,000.
Other complex changes have impact on how salary sacrificing is treated, potentially altering employers' Superannuation Guarantee obligations and fringe benefits liabilities.
The implications for each individual will vary widely and unpredictably (if at all), given individual circumstances. The detail available for the average person is confusing. The breadth of welfare and government income transfer arrangements being altered is considerable.
What is certain is that the total extra revenue contribution the government expects to receive is $600 million per annum.
It’s part of the Rudd government’s program to dismantle what they consider to be Howard’s legacy of middle class welfare. This appears to be a steady theme of many budget leaks.
What’s politically astute in the approach is that welfare and other payments are reduced or government revenue increased without a headline dismantling of benefit programs. Individuals won’t know the impact on them until they have done considerable research. More likely, most people will find out following reassessment advice from Centrelink, the Child Support Agency or other government bodies.
Ultimately there are many Australians who will find themselves collectively $600 million worse off in 2009-2010.
If this approach flags a typical strategy, taxpayers and benefit recipients will need to study the fine print of the federal budget to understand the impact.
Ken Phillips is executive director of Independent Contractors of Australia. He is the author of Independence and the Death of Employment.
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