Coalition rejects push to scrap regional tax breaks

Furious Coalition MPs have dismissed a recommendation to abolish a tax concession for those in regional Australia.

Assistant Treasurer Michael Sukkar has rejected a Productivity Commission report which recommends abolishing a tax concession worth up to $1173 for people living in remote Australia. Picture: Gary Ramage

Furious Nationals MPs have joined with Assistant Treasurer Michael Sukkar in rejecting a Productivity Commission recommendation to abolish a tax concession worth up to $1173 for people living in remote Australia, after the independent advisory body found nearly half of those accessing the rebate live in large coastal cities.

The commission also said two other tax payments and exemptions designed to help welfare recipients meet higher living costs in remote areas and encourage people into the regions for work should be overhauled.

The Productivity Commission controversially found the zone tax offset, which dates back to 1945 and allows taxpayers in certain regional areas to claim between $57 and $1173 on their tax return, should be scrapped or changed so it was only available to residents of very remote areas with a flat rate of $1173 per year.

After a year-long inquiry, the commission said the ZTO was outdated with boundaries not keeping up with changes in remote Australia; its value had been eroded by inflation and growth in wages; and there was no evidence it encouraged people to live and work in eligible zones.

“Against a backdrop of significant evolution in remote Australia, some areas covered by the ZTO are clearly no longer ‘isolated’,” the report states. “Coastal areas like Townsville, Cairns and Darwin have developed considerably since the 1940s.”

Former Nationals leader Barnaby Joyce and Queensland Nationals senator Matt Canavan declared they would never support the removal of the ZTO but they were open to looking at reforms to the tax concession.

Barnaby Joyce and Matt Canavan. Picture: Gary Ramage

Susan McDonald, also a Queensland senator, said she would recommend the “shortsighted” report “be sent for immediate recycling and that we get the commission working on real solutions for people in the regions”.

“It shows a very worrying willingness by bureaucrats to put the regions in the ‘too hard basket’,” she said. “Rather than abolish the offsets, we should be enhancing them.

“The report states current tax policy doesn’t do much to attract people to live in regional Australia, but rather than suggesting measures such as raising the concession or cutting fuel excise, it simply recommends cutting it completely.”

Total ZTO claims in 2016-17 were worth about $153m in lost tax revenue.

The commission found the remote area allowance – for students, carers, pensioners and other Australians in remote places who receive welfare – was justified but should be better aligned with very remote geographical areas.

Payments should also be revised. The RAA is paid each fortnight on top of other income support and varies between $7.30 for each dependent child and $18.20 for an individual.

In 2017-18, the government spent about $44m on RAA payments.

The report also recommended the use of fringe benefits tax remote area concessions should be tightened and concessions for employee-sourced housing removed.

Mr Sukkar said the commission’s recommendations would result in “significant disruption to existing arrangements” if they were implemented.

“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,” he 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.”

Senator Canavan and Mr Joyce said remote areas did not have the benefit of public infrastructure built in major cities but there was likely a case for an overhaul to the ZTO, including limiting who could access the rebate but paying them more.

“I would support a reform of the allowance because its value has eroded over time and the boundaries have barely changed since the Second World War, even though our country is much different,” Senator Canavan said.

Senator McDonald said FBT concessions were crucial for businesses in remote and rural Australia that provided accommodation to employees as part of their salary packages.

There have been tax concessions for remote areas since the end of World War II to recognise “high living costs, isolation and uncongenial climate in much of remote Australia”, presiding commissioner Jonathan Coppel and commissioner Paul Lindwall said.