Keating hits high incomes

Press, 20 September 1985, Page 4

Keating hits high incomes

NZPA Sydney The Australian Treasurer, Mr Paul Keating, yesterday finished reshaping the nation’s taxation system with a triple slug at highincome earners — a capital gains tax, slashing fringe benefits, and an assault on tax shelters. To sweeten the pill, marginal tax rates will be cut with the top rate down to 49c in the dollar, the taxfree threshold will rise to ?Austsloo ($6630), and those on social welfare will be allowed to earn more before being taxed. Mr Keating, in an hourlong address to Parliament, described the changes as the most far-reaching, genuine, and substantial tax reforms which achieved the aims the Government had when it set out to reform the tax system. He said that for too long tax avoidance had meant that those who could best afford to carry the financial burden in Australia had been getting out of it, leaving middle-income earners to pay more than their share. What he did not say was

that the more radical reform he wanted to bring in — a major 'shift to indirect taxation with big cuts in income tax — had been torn to pieces on the rocks of vested self-interest at the July tax summit, and the reform he presented yesterday was limited by comparison. The result is that average income earners will be little better off with a tax cut of sAust9 ($11.70) a week in the first year and up to sAustls.2o ($19.76) a week by the time the package is working. This compares with projected cuts of well over sAust2o ($26) under his preferred option which went out the window when the Government made its compromise with the Australian Council of Trade Unions. He has taken the knife to fringe benefits, killing off completely all tax deductions for entertainment expenses — from business lunches and drinks through to hostess services and private boxes at sports fixtures. To stoke what will be a storm of protest from the

Australian business community, he has taxed company cars, cheap loans, company residences, and expenses paid on behalf of employees. The only main areas to escape will be staff discounts and employee superannuation funds. Members of Parliament and Government employees have not escaped either with Government-paid credit cards being withdrawn as they expire, an end to Government-provided cars, and an end to other “perks.”

The next big slug was the introduction of a capital gains tax, but in a big concession and with an eye to the potential for electoral damage, it will apply only to purchases made from yesterday, will not apply on death — removing the de facto death duty element — exempts the family home, cars, furniture up to sAustsooo ($6500), and such possessions as life insurance policies, and will be tied to inflation. It is also framed io avoid slugging farmers.

Mr Keating’s attack on tax shelters was targeted mainly on the Australian equivalent of “Queen Street farmers,” trusts, and family companies designed solely to minimise income tax. He has removed the provision for the writing-off of farm losses against other income, but made allowance for genuine farmers in dire straits who are working at other jobs to supplement farm income, and instituted a profitability test to trap businessmen using farms to write off tax. Earlier report, page 6