Tax break too complex
(11 October 2011 – Australia) The Australian banking industry has criticised Treasury’s design for the savings tax break for bank deposits, saying it will require too much paperwork from households that only stand to make a small gain.
In July, the government introduced a 50 percent tax discount on interest earnings of up to A$500, a measure it says will benefit up to 5.7 million Australians and support bank funding.
The policy goes part of the way to implementing the Henry review's call for a 40 percent cut in taxes changed on interest - which is taxed at the top rate paid by a taxpayer.
Banks have broadly supported the plan, but lenders say the A$500 cap, which will rise to A$1000 in 2012-2013, is too low to give customers a strong incentive to put more of their savings into interest-bearing assets.
The Australian Bankers' Association (ABA) said forcing households to calculate net interest income would present them with a ''compliance minefield''.
The majority of people would not incur significant expenses in earning interest, the association said, and forcing them to calculate net interest income ran the risk of causing the policy to fail.
As the discount was aimed squarely at consumers, the association said it would be far simpler to give the tax break to gross interest, rather than net interest.
''The ABA is concerned that the relatively low level of the proposed discount may not have a significant impact either in mitigating tax-induced distortions which affect the allocation of capital, or in increasing the level of national savings,'' it says in a submission to Treasury.
The policy goes part of the way to implementing the Henry review's call for a 40 percent cut in taxes changed on interest - which is taxed at the top rate paid by a taxpayer.
Banks have broadly supported the plan, but lenders say the A$500 cap, which will rise to A$1000 in 2012-2013, is too low to give customers a strong incentive to put more of their savings into interest-bearing assets.
The Australian Bankers' Association (ABA) said forcing households to calculate net interest income would present them with a ''compliance minefield''.
The majority of people would not incur significant expenses in earning interest, the association said, and forcing them to calculate net interest income ran the risk of causing the policy to fail.
As the discount was aimed squarely at consumers, the association said it would be far simpler to give the tax break to gross interest, rather than net interest.
''The ABA is concerned that the relatively low level of the proposed discount may not have a significant impact either in mitigating tax-induced distortions which affect the allocation of capital, or in increasing the level of national savings,'' it says in a submission to Treasury.
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