The federal government has responded to concerns of industry, tax experts and the education sector by delaying the introduction of the self-education tax deduction cap until July 2015.
The announcement of the cap earlier this year provoked outrage from all sectors of the business community, but on Friday Canberra’s economic update revealed the government would spend more time consulting with groups about the impact of the change.
In April this year, former treasurer Wayne Swan announced the cap on self-education tax deductions, limiting deductions to $2000 a person per year from July 1, 2014.
Since returning to the leadership, Prime Minister Kevin Rudd has been under pressure to scrap the cap from business and tax groups.
The cap was designed to raise $270 million per year by 2017 and Swan said it would stop people enjoying “unlimited” benefits at the expense of taxpayers, such as first class airfares and five star accommodation.
The federal government’s decision to delay the cap was welcomed, although most are still calling for it to be dropped.
Universities Australia chief executive Belinda Robinson said in a statement the 12-month deferral will be a temporary, but significant, reprieve for hundreds of thousands of people.
“It would reduce national productivity by up to $6 billion per annum and reduce tax revenue by up to $1.5 billion per year.”
“It would exacerbate skills shortages across the board, take us backwards in realising our ambition to become a knowledge nation built on education, skills and innovation, and scotch any aspiration to increase national productivity to 2%,” Robinson said.
In June, Higher Education Minister Kim Carr told critics of the cap they could submit their own proposals in response to a Treasury Discussion Paper on the issues, so long as they were “budget neutral”.
Universities Australia, party of a group of 70 organisations and businesses campaigning against the cap, proposed reducing the no-claim threshold for all work-related expenses from $250 to $90, spreading the costs to all taxpayers.
Tax Institute senior tax counsel Robert Jeremenko told SmartCompany the cap goes against the government’s own rhetoric.
“The delay is a positive step, but it’s important for people not to get carried away. The government is still committed to implementing this change which tax professionals believe is unnecessary.
“This decision is running counter to the government rhetoric around increasing productivity… It’s a sledgehammer to crack a nut,” he says.
Jeremenko says the government is concerned about a small minority.
“There are ways the government can stop people claiming tax deductions for first class airfares without affecting the vast majority of people who are not doing that.”
“It can ask the tax office to enforce the current law and the government may also wish to look at a specific targeted amendment to the law just to change the expenses which the government sees as unreasonable,” he says.
The recent Treasury discussion paper revealed higher income earners claim higher amounts, but 87% of individuals who lodged a return and claimed these expenses had incomes below $80,000. In 2010/2011 the median claim was only $905.
Last week the Coalition chimed in for the first time on the cap, with shadow education minister Christopher Pyne saying the Rudd government should abandon it.
“I am calling on the government to scrap the cap. It was their mistake and they need to outline their plan to fix it,” he said.
But Jeremenko says this isn’t enough, with the Tax Institute calling on the Coalition to formally declare its position.
“They’ve come close by calling for the government to scrap it, but they haven’t said they’ll oppose it,” he says.