Tax rule changes spark a swirling storm of anger among Aussies

Stage three tax cut changes, negative gearing, superannuation rule changes and 2023’s end of the LMITO spark anger. Here’s why.

Does anybody remember the celebrations and dancing in the streets when, back in 2006, Peter Costello’s federal budget announced zero-tax superannuation in retirement for over-60s?

Or the gratitude millions felt when our GST was introduced in 2000 at 10 per cent – one of the lower rates in the world – and mercifully excluded groceries and a few other things?

And who remembers cheering crowds when the previous Coalition government introduced its Low and Middle Income Tax Offset (LMITO) a few years ago to deliver Aussies bigger refunds, then expanded it to up to $1500 a year in 2022?

If your answer is no, no and no, don’t worry – you’re not alone.

It’s normal to feel frustrated when tax breaks are reduced, but we often forget the cuts.

Number one, because none of those tax changes sparked huge celebrations, and number two, because we’re not wired that way.

Most people are quick to forget when given extra money in the form of tax cuts or tax breaks, but even quicker to get angry if it’s taken away. Winding back tax breaks makes many of us madder than a mozzie in a mannequin shop.

We can partly blame our brains for this. Behavioural economists – finance specialists who study how peoples’ minds approach money – say we feel financial losses much harder than we feel financial gains.

It’s why people panic sell when share markets sink fast, even though history suggests the inevitable recovery will be strong and swift.

This feeling of loss is also why every time governments try to slap us with new taxes, or rewrite the rules on previously legislated taxes, there is anger and frustration.

Even if, in the evolving national scheme of things, the changing of tax rules may seem fair.

Several experts have previously suggested a rise in the GST because as a broadbased consumption tax it hits spenders the most, and wealthier people are the biggest spenders.

But you won’t find any Australian government rushing to bump up our GST because they fear, probably correctly, that it will cost them an election. This is despite our 10 per cent GST well below value-added tax rates overseas of 12-20 per cent, although Canada and the US are 5 per cent and 0 per cent respectively.

Politics plays an increasing role in new taxes, tax breaks and tax cuts.

Labor’s move this year to break its promise on not changing the stage three tax cuts, and broaden those cuts dramatically to include most workers rather than just the richest, was attacked by the top end of town.

However, even some of those affected high-income earners found themselves agreeing with the move that would reduce their $9000 annual tax cut to $4500 while sharing the pie among more lower and middle income people.

This was blatant tax politics. Less obvious was last year’s end to the LMITO, which was only noticed by people when they received their 2022-23 tax refunds and found that up to $1500 was no longer there.

Labor could have kept the LMITO, and not changed stage three tax cuts, for the same effect on after-tax income for someone earning $75,000 a year. But it’s all about the politics.

Meanwhile, Australians will continue fighting any talk of increasing taxes – whether it’s wages, superannuation or negative gearing – because just like the late Kerry Packer we generally don’t think governments are doing a very good job of spending our money.

Originally published as Tax rule changes spark a swirling storm of anger among Aussies