Drastic changes to longstanding tax concessions and payments for remote areas, including the abolishment of the zone tax offset, have now been avoided as the government turns down the Productivity Commission’s recommendations.
“Given the challenges faced by regional Australia, including as a result of the impacts of the recent drought, bushfires and now coronavirus, the government will not be acting on the Productivity Commission’s recommendations,” said Assistant Treasurer Michael Sukkar.
The Productivity Commission’s study on remote area tax concessions and payments had been initiated by Treasurer Josh Frydenberg in late 2018 after expressing concerns that they had not been updated since their establishment in 1945.
In its final report, the Productivity Commission called for the abolishment of the zone tax offset, worth around $153 million, finding that it “no longer serves a purpose in contemporary Australia”.
It also believed that fringe benefits tax (FBT) for remote areas were overly generous, costly and inequitable, calling for changes to the concessions’ rates and eligibility rules.
The Productivity Commission also recommended that the remote area allowance (RAA) be retargeted towards those in very remote areas, as classified by the Australian Bureau of Statistics.
In an about-turn, the government has now chosen not to act on the final report’s recommendations.
“Were they to be implemented, the Productivity Commission’s recommendations would result in significant disruption to existing arrangements. This was confirmed by the volume of submissions which the Productivity Commission received in response to its draft report, the overwhelming majority of which were not supportive of the proposed changes,” Mr Sukkar said.
“The most important thing we can do at this time is continue to provide certainty and confidence to those living in regional areas that the government remains fully committed to supporting the growth of our regions and their continued success into the future.”
Chartered Accountants Australia and New Zealand (CA ANZ) senior tax advocate Susan Franks said it stood by its submissions to the Productivity Commission, including refraining from abolishing or dramatically curtailing remote area tax concessions and instead adopting the ABS’ definition of remoteness to better target such communities.
“Determining how to provide appropriate support to regional areas is a complex problem, but it is not an issue that will disappear without a solution,” Ms Franks said.
“The changing economic, technological and social environments both within Australia and globally means that the reform of our nation’s tax and expenditure systems cannot be delayed forever.”