Friday, October 27, 2006

Tax incentives: training

Australia's tax system is considerably more complex than NZ, not least of all because of the various deductions available. Earlier in the week, the Australian Financial Review (offline or subcriber only) covered a story suggesting a new deduction, this time for expenditure on accredited training for both employers and individuals.

Some State's favour this approach because it means they don't have to contribute more funding - in NSW, the bill for training 80 percent plus covered by the State, around $1.3 billion, compared with $300 million from the Commonwealth. However this proposal is not without risks, particularly the risk that the tax incentive won't increase training in proportion to its cost - deadweight risk. Also, it may not increase training as much as is required - some NSW experts claim a 2.5 percent per annum increase is needed others, focused on the broader national scenario, say 5 percent.

There are other alternatives, obviously governments could increase funding - in some States this is likely but in others it is not. Income contingent loans are another alternative although politically and practically this is less likely - unless all States' and the Commonwealth agree, any debt/loan scheme is damn near impossible since repayments are best made through the Pay as You Go tax system which is a Commonwealth system.

Whatever the solution, there is a general consensus that training participation rates have to go up to improve workforce participation and prepare for the impact of the aging population.

1 comment:

crasster said...

If you're looking for simplicity in a tax system, then a consumption tax - like GST or a flat wealth tax is probably the way to go. Both, however, have significant distributional inequities. All I know is that, when I worked in Australia as a foreigner, I paid through the nose. I also have a nest egg of compulsory super deductions made when I lived in Aussie. I cannot access this until I am 65. It should have a value in today's dollars of about $10,000. So, while not vast, it will be a nice fillip to my family in my dotage.

Is it me, or are your posts getting fewer and fewer. Not losing interest, are you?