the mozo blog

After much debate and conjecture, the Federal government finally issued what has been widely labeled as a cautious and narrow response relative to the broad and expansive scope of the Henry Review of the taxation system. Indeed, only a smattering of the 138 recommendations outlined in the review have been taken on board for this round of reform. Left off the list were the anticipated new tax concessions on savings. Attention instead turned squarely towards superannuation with Australia’s aging population looming as a big issue.

While a lot of the focus will be on the exclusions, there were some significant steps made towards reform yesterday, the three cornerstones being:
* A 40% tax on mining industry profits, labeled as a resource rent tax on their “super profits” and netting the government $12 billion in forecast revenue between 2012-13.
* Increasing the superannuation guarantee from 9% to 12% by 2020 with the government to contribute $500 for people earning up to $37000.
* A cut in the company tax rate from 30% to 28% by 2015. Small businesses will get the cut by 2013 as well as receiving a range of other new benefits.

The changes announced yesterday have been earmarked as the first step in a wave of changes in enacting revolutionary tax reform. The government has explicitly stated that there will be more announcements in the future on savings incentives, as one of central issues to be addressed in the government’s second term agenda. This still leaves both financial institutions and consumers in the lurch for the foreseeable future however. Many hoped that by increasing bank-held deposits, the saving concessions would help reduce funding costs by alleviating the need to rely so heavily on foreign debt, thereby reducing the need for banks to enact mortgage rate rises above that of the Reserve Bank.

So all up it’s much the same for most of the players in the banking sector, at least for now anyway. All eyes now turn to Martin Place tomorrow, as we see what effect these changes (or lack thereof), will have on the Reserve Bank’s monthly cash rate announcement. Mozo’s rate chasers will be out in force, so be sure to check our Reserve Bank interest rates page from 2:30pm tomorrow to get all the latest news and rate changes as they happen.

Banking comparisons made easy at mozo.com.au

The words ‘tax’ and ‘exciting’ make strange bedfellows at the best of times, but it really can be described as a potentially exciting time for Australians on the tax front. Consumers look set for a double boost this Sunday, when the Federal Government finally releases its findings and decisions derived from the ‘Henry review’ of the tax system. Chaired by the head of the Federal Treasury, Ken Henry, the review has been labeled as a “root-and-branch” review of Australia’s tax system, and by all reports consumers could see gains with regards to both their savings and their mortgages as a result of some of the potentially adopted findings. Dr Henry handed over the report to Treasurer Wayne Swan in December 2009 and since then, Treasury officials have been working on the government’s response to the review.

In terms of Australia’s banking climate, the review looks set to cause a possibly portentous shake-up of the savings account market. Australia is one of the few countries in the developed world to currently tax bank savings at the full rate, a tag which by all reports will be shed soon, with the government preparing to offer significant tax breaks on savings. Whilst the extent of these breaks are as yet unknown, they are unlikely to match the UK model of which where individuals can deposit close to $17,000 (£10,200) tax-free. Dr. Henry is a known admirer of the UK system, yet many in the media are purporting rumours that something similar to the concessions currently in place for superannuation accounts will be announced instead. However, considering the range of options available in terms of size, scope and delivery, there’s no way to be sure till we hear what Wayne Swan has to say himself.

The tax break would also be a huge boost for Australia’s banks as it could generate billions in additional deposits, potentially lowering their funding costs through reducing the reliance on overseas finance. As a result of this, consumers could potentially receive a boost with regards to home loans payments. The banks have been very quick to use high funding costs to justify mortgage rate rises above that of the Reserve Bank‘s cash rate increases. With funding cost pressures alleviated to a significant degree, the government may well turn around and use this savings deposit boost as political leverage aimed at forcing banks to keep mortgage rates down and in turn, voters happy.

Either way, as far as the banking industry is concerned, consumers look to finally be on the receiving end of some good news. Mozo’s Rate Chasers will have a full wrap-up of all the implications for both deposit and lending accounts here on Monday, so be sure to check back to see what all the new changes mean for you.

Compare savings accounts at mozo.com.au