Australia's current tax system penalises taxpayers on income derived from savings outside the superannuation system.
Given the tax-preferred status of superannuation, it has become the preferred savings vehicle for most Australians.
This is beneficial for retirement savings, but does little to recognise the necessity for individuals to save income
outside of super to afford major capital purchases during their working lives. If income derived from savings was
taxed at a rate that was lower than an individual’s marginal personal tax rate, this would encourage greater savings
and investment outside of the super regime also.
Such an initiative may also provide an opportunity to reduce or even remove the CGT discount currently available
to individuals.
Further, it would also make the gearing - particularly negative gearing -of investments less economically attractive -
but at the same time still encourage investment in housing, and help improve housing stock. See Recommendation 14 of the Henry Report - that proposed that there should be a 40 per cent savings income discount
available to individuals for non-business related net interest income, net residential rental income (including related
interest expenses), capital gains (and losses); and interest expenses related to listed shares held by individuals as
non-business investments.
This requires a substantive change to tax policy and is outside the scope of Sounding Board. This idea has been passed to Treasury for their consideration.