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.
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