One serious omission (of many) from the government’s response to the Henry review is any sign of the adoption of the principles that Henry states about the tax transfer system signalling the national views on more than just economic goals.

The many areas of increased fairness and transparency in the two systems were ignored, so government promises are not promising.

We’ve not seen any acknowledgment of the areas that would have benefited women, and other low income earners, for example — facilitating higher female workforce participation through more affordable care and better integration of the tax and welfare payment systems. I don’t agree with work testing payments when a child turns four, but the income tax exemption of payments would make it easier to move from care to paid work.

The report was used oddly to push some non-recommended ideas. For instance, Henry recommended against the rise to 12% of super, as it was not needed by those on higher incomes and would not specifically assist low income earners. The review’s suggestion was that contributions be taxed as income, i.e. at the recipients’ current tax rate. This would have created better equity and netted additional government tax income as higher income recipients would have paid their fair share rather than using super as a form of tax avoidance.

The raising the super guarantee level to 12% is a sop to the super industry, the ACTU, and a return to Paul Keating’s dream. However, it ignores the serious questions of equity that make extra super not particularly desirable for those on low and intermittent incomes.

The small rebate, proposed for refunding “up to $500 p.a.” for those earning under $37,000, is a small, inadequate compensation for the other tax disadvantages of the super tax concessions. While it will just cancel their 15% tax on contributions, which often unfairly exceed their average tax rate, but doesn’t give them nearly the 15% to 30% beneficial tax advantage still available to contributions of those in the higher tax brackets.

In addition, many of the women who hold these lower level jobs will be likely to end up paying for their contributions in lower wage rises as they are less likely to be able to negotiate higher pay rates. Employers will want to hold pay rises to fund the admittedly slow but inevitable rises in super from 2012, so the gap between low-paid workers and the rest will increase.

One argument Henry put against raising the super contributions is that lower income earners mostly need the extra 3% in wages for expenses now rather than in retirement. However the delight of the super industry and confusion in the minds of most recipients will confound the message and inequitable super industry will continue to flourish. The public subsidies for so-called self-funded retirees will continue to be often more generous than giving them the aged pension!

The small business changes may benefit some, but the reduction in company tax will benefit big business and leave less to redistribute. The many other interesting Henry proposals for greater equity in housing and other forms of wealth accumulation await further attention. The current announcements please few as they are a gutless response to an interesting, if not always pleasing, tax review that deserves more close attention.

The philosophical statement of what makes a good tax and transfer policies has been ignored, a few unthreatening cherries being picked with the resources industry profits being cast as the big bad wolf the government pretends is threatening our national wellbeing. This allows them to claim they are doing something good! We await the Budget for more action but not with high expectations.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey