Hockey Dumps Education Tax Cap & FBT Car Leasing Changes

The Federal Coalition Government is to axe the former Labor Government’s tax cap on self-education expenses along with the controversial change in policy on car leasing and FBT, which was expected to have a significant impact on the Not for Profit sector.

Federal Treasurer Joe Hockey.

The Self-Education Expenses Cap and the Fringe Benefits Tax change are two of seven measurements the Coalition says it will not not be continuing with.

Topping the list of axed measurements is the Coalition’s election promise to cut Labor's $1.8 billion Fringe Benefits Tax on the car industry.

It’s understood that charity workers make up around one quarter of all novated car leases (part of the individual’s package) in Australia.

“During the 2013 election the Coalition pledged not to continue with Labor's $1.8 billion Fringe Benefits Tax change that would make it harder for people to have a company or salary sacrificed vehicle,” Federal Treasurer Joe Hockey said.

“The Coalition Government today confirms it will not proceed with this measure.”

The Labor Government announced at the last Budget that it would put a $2,000 cap on self-education expenses,  including training and educational courses, textbooks and other accreditation expenses, to save $266 million over the forward estimates.

Hockey said not proceeding with this measure would mean that the expenses would continue to be deductible according to the “normal rules”.

“The highest number of self-education claims over $2000 (ie 80 per cent) come from people earning less than $80,000 per annum,” he said.

“We have been advised that there is no credible evidence of substantial abuse of this deduction.

“If credible evidence of systematic abuse emerges, then the Government will revisit this issue. Moreover the economic cost of this initiative is substantial.

“This was recognised by the previous Government which delayed the implementation of their proposal.”

Hockey said the Government was dealing with the final backlog of 92 measures of announced but unlegislated tax and superannuation measures.

“This backlog has created significant operational uncertainty for businesses and consumers.

“The Government is determined to resolve all policies relating to these matters by 1 December 2013 for inclusion in the Mid-Year Economic and Fiscal Outlook (MYEFO),” he said.

“The Government intends that the bulk of legislation that is to be progressed should be passed by the Parliament by 1 July 2014.”

Chief Executive Officer of welfare peak body ACOSS, Dr Cassandra Goldie, said the Government had sent a “concerning signal” that low income households could bear the brunt of fiscal restraint by retaining tax breaks that mainly benefited high income earners, such as the tax exemption for certain superannuation fund earnings and the cap on self-education expenses claims.

“With Australia to assume the Presidency of the G20 in December, the world will be looking to this Government to set an agenda for inclusive growth in which the benefits of growth are shared with a view to creating stronger economies and communities," Dr Goldie said.

“In recent weeks, the Government has confirmed its decision to cut the rebate for super contributions for low income earners, the allowance supplement ($4 a week for allowance recipients), and the School Kids Bonus – which ACOSS argues should be re-directed into higher Family Tax Benefits for low income families, not abolished altogether.

"The allowance supplement is the only real increase in Newstart Allowance for almost 20 years. ACOSS has called for a $50 increase to ease entrenched poverty among unemployed people and single parents, many of whom were affected by recent payment cuts. Against that backdrop, to take away a $4 increase is unconscionable.

"The removal of the super contributions rebate penalises compulsory  superannuation contributions,  increasing the tax rate for low income earners below $37,000 by 15 cents in every dollar contributed.

“This stands in contrast to the decision not to proceed with the $100,000 cap on tax exemptions on superannuation earnings supporting pensions and annuities which benefits the 'top end'.”

Dr Goldie said ACOSS was also concerned over the measures to address profit-shifting and tax minimisation by companies investing overseas may be “watered down”.

“The ATO has indicated that these avoidance strategies pose a major threat to public revenue so firm action is needed,” she said.

“The Commission of Audit should comprehensively review Government spending and tax expenditures to help set the Budget on a path to sustainability. Much of the waste in the budget is on tax side and this disproportionately benefits high earners.”

She said the Government should not rule out or reveal tax measures without a considered tax reform process such as what was conducted through the Henry Tax Review.

“The Government’s decision to drop ill-conceived plans to cap self-education expenses at $2000 a year was a welcome boost for our national competitiveness in the Asian Century,” CPA Australia chief executive Alex Malley said.

Malley said the decision would again incentivise the pursuit of training, skills and knowledge development and realise significant individual, social and economic dividends.

“The fact is that if we are going to compete in the Asian Century then we need to be encouraging investment in the very areas where we can excel – knowledge, innovation, skills and education are key among them,” he said.

Malley also applauded the Government’s reversal of changes to Fringe Benefits Tax rules for motor vehicles which he said recent figures showed had acted as a huge hand-break on the car industry at a time when it was already feeling significant pressure.