Originally published in the West Australia, 17 April 2017
It’s a tough time to be a taxpayer in WA. The new government is facing a massive budget black hole with households likely to be hit come the state budget in August and Treasurer Wyatt has already refused to rule out significant power price hikes.
To add to the trouble, pressure is also mounting at the federal level with all signs pointing towards a crack-down on a worker’s ability to claim work related expenses as a tax deduction.
For most average tax payers, the ability to claim legitimate work related expenses is one of the few aspects of the tax system that seems to work in their favour.
In recent weeks the Commissioner of the Australian Taxation Office (ATO) said that one of the biggest revenue leakage problems in Australia’s tax system came from individuals claiming work-related expenses.
The Tax Commissioner was quoted as saying work-related expenses and the black economy, also known as the cash economy, were a greater threat to tax revenues than multinational tax avoidance.
With the Prime Minister and Treasurer looking under every possible rock for extra tax revenue, we can expect to see measures tackling these issues announced in the Federal Budget.
Of course the Government should be looking to ensure that any leakage in the tax system is addressed, but it must also frame its policy in a considered manner.
In terms of the black economy, Revenue Minister Kelly O’Dwyer established a taskforce which has provided its interim report to government. The findings will no doubt feed into the budget.
But what about work-related expenses?
It was only last year that a parliamentary inquiry looked at worker’s ability to claim deductions for work-related travel, uniforms, protective clothing, tools and even self-education. However the committee was disbanded without reporting when the 2016 election was called.
Post-election, the Treasurer asked the committee to re-establish the inquiry but no details have been provided as to when it is expected to report.
It is easy to see why work-related expenses are so attractive to the ATO and Treasury. In 2015, 8.6 million Australians claimed a total of $21.8 billion for work-related expenses. Of these 7.5 million are taxpayers who are not in business, claiming $18.8 billion.
Changes to the rules surrounding work-related expenses look like being back on the cards. Workers with legitimate work-related expenses that can be supported by evidence will not welcome any changes that see their ability to make legitimate deductions reduced.
Getting the message right on any changes will be a major challenge for the government.
One measure that is often touted is to bring in a standard deduction for everyone, regardless of vocation. This ticks the boxes in terms of administrative simplicity but falls short in terms of fairness.
A standard deduction does not take into consideration the very significant differences that exist across different jobs. In this scenario tradies, medicos, public servants, hospitality workers would all get the same cap on their deductions regardless of what they actually spent in earning their income.
If changes to policy are not well thought out we could end up in a situation where businesses are allowed to deduct their legitimate expenses, but employees become subject to an annual cap. Never mind equity. Never mind the worker.
Given any changes to policy impacting work-related expenses will affect 8.6 million Australians, the government will need to make sure it gets its policy settings and sales pitch right.
Alex Malley is chief executive of CPA Australia