Sent: 18-08-2009 12:28:02
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Henry Tax Review Dips Its Toe In The Water
During the past week two of the ideas floating around the Henry Tax Review's corridors have found their way into the media.
The first of the ideas was the possibility of the Federal Government to provide an annuity to those who retire with lower asset values.
The second idea involves applying Capital Gains Tax to the family home but only for the 'rich'.
To the best of my knowledge the Government hasn't officially reacted to the first idea but the cork was quickly put back in the second idea's bottle.
For some the first idea might seem like a good idea because of the 'dangers' of running out of money with the use of account-based income streams.
I sincerely hope it doesn't become official policy. Government has never been particularly good or efficient at delivering any product or service. This should be pretty clear to anyone who thinks for a minute.
Take the old Commonwealth Employment Service as a classic example. Amanda Vanstone closed it down because she was "persuaded that a combination of business and non-profit agencies could do a much better job for less money than a bunch of demoralised public servants".
As anyone in business knows, you can't pay income if you aren't earning income. Why retail pensions are not established along these lines remains a mystery. Why planners recommend this faulty structure also remains a mystery.
A better solution might be to alter how retail pensions operate? There are many changes that should happen here.
In future years the work and findings of the Cooper Review might be judged on how well it tackles this and other major systemic issues.
What about taxing the capital gains of the family home?
The media reports suggested that only homes that are sold for more than $2m would be hit. Apparently this would only be a small number of houses. (How many of these more expensive homes are personally owned and hence eligible for CGT exemption anyway?)
I have previously argued that this current government has been showing a tendency to be insatiably envious. Whilst this CGT on the family home policy has been shelved (until after the early election, perhaps?) we now have yet more evidence to justify this observation.
The CGT and Centrelink assets test exemptions exist on the family home because it is such a basic need that to financially penalise it would be unfair and unreasonable.
But these exemptions only really work in a town planning environment which is not tightly regulated and transactions occur with a little 'cost-friction' as possible. The Australian property market does not operate in this way. In fact it's the reverse.
Many people like property in Australia because its supply is very tightly regulated and the transactional costs are enormous. These keep prices artificially high.
Finally you might like to read the editorial which appeared in the Australian edition of The Spectator last week. It raises the issue of a recent High Court case which the Government came close to losing. If lost the case would have returned significant power to the States.
I will have more to say on this topic next week.
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