Henry Tax Review and Reform of the Australian Tax System

The long-awaited Henry Tax Review Report will be made public on Sunday. The government has been sitting on the report for a long while, and the release is just in time to feed into this year's pre-election budget. The government has already hinted that this year's budget will cut tax for "most" middle-income "working families", so I'm guessing all the revenue raising possibilities contained within the Henry Report will have been thoroughly examined. It will be interesting to see what the report contains, and which bit the Labor government chooses to adopt -- especially in the near term (I expect any costly or difficult reform will be "phased in" over enough time to leave it as a problem for Mr Rudd's successor). My guesses as to what end up as policy based on the report:
* resource tax - this seems a no-brainer given the high profit margins currently enjoyed by the big miners due to the resource boom
* superannuation changes - I will be pleasantly surprised if Labor doesn't fiddle with the superannuation laws. The most obvious way to get some more revenue from the "rich" will be to eliminate the recently introduced tax-free status for superannuation income during the pension phase. Self-funded retirees are too "rich" for most of them to be Labor voters, so Mr Rudd will be happy to tax them more. The revenue will probably be used to increase the tax benefits of superannuation for low-income workers. Apparently a flat 15% tax on super contributions isn't "fair" as high-income workers get a bigger "benefit" -- conveniently forgetting that the bigger benefit is due to paying a much higher rate of tax in the first place.
* capital gains - I suspect the 50% tax rate "discount" applied to long-term capital gains will be removed or reduced. And I doubt the cost-base indexation it replaced won't be brought back in, unless it is also introduced for savings account interest (ie. only savings account interest above the CPI is taxed). That would fit in with the rumours about making savings for low-income workers more attractive.
* negative gearing - I doubt this will be axed (it had too much impact on housing investment last time changes were attempted under Keating), but it may be "quarantined" ie. Interest costs are only deductible against income (rent) from the same investment type. They already have similar rules relating to different types of capital gains.

I'm sure there will be lots of surprises in the Henry report and the May budget. But I'm not expecting them to be pleasant ones for this middle-income "working family" -- "tax effective" investments are likely to come under serious attack.

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Net Worth Update: March 2010

Stock portfolio value increased significantly during March, which meant our SMSF account also rose (as our superannuation is largely invested in the stock market via the Vanguard High Growth Index Fund). There were no employer contributions deposited during this month. Our real estate investments also saw a significant rise in valuations compared to the previous month's data, but future monthly NW updates will not include current property value estimates because the domain.com website has been revamped and the monthly median sales price data is no longer available. In future months I'll simply increase valuations by 0.4%, which should be slightly below the long term price trend. I can make adjustments every six months when other data becomes available.

Assets___________$ Amount______$ Diff_____% Diff 
Stocks____________$60,647_____$13,181____27.77 % 
Retirement_______$342,441_____$17,748_____5.47 % 
Home_____________$864,631_____$17,836_____2.11 % 

Debts____________$ Amoount_____$ Diff_____% Diff 
Home Mortgage(s)_$364,555________-$67____-0.02 % 
  
Net Worth________$903,164_____$48,833_____5.72 % 

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