Taxing business lunches and pensioners' assets

The delicate question of introducing a pensioners' assets test was finally resolved. Legislation for the test was introduced in December 1983, but provoked widespread criticism. On 23 February 1984 Cabinet decided that the Prime Minister would make a statement emphasising the government's determination to direct pension spending to those who relied on it and not to people who, by any reasonable standard, did not require it. However the Prime Minister would acknowledge that there was considerable community confusion about the assets test, and to address this confusion the government would set up a broadly based panel of community representatives to advise it. In June 1984 Cabinet decided to proceed with an assets test under which the pension rate would be the lesser amount delivered under the existing income test or the assets test. The pensioner's principal residence would be excluded from the test, but where the pensioner's other assets were valued at more than $70,000 (single) or $100,000 (couples) the pension rate would reduce by $20 per week for every additional $10,000 worth of assets. The assets threshold for pensioners who did not own their homes would be $50,000 higher, and pensioners who had more than 75 per cent of their assets in illiquid forms would be able to draw a pension in the form of a loan repayable from their estate (see A13977, 820 and A13979, 2841).

On 29 April 1985 Cabinet noted recent publicity on the impact of the assets test, particularly in rural areas, and called for a submission on problems with the test and ways to alleviate hardship (see A13979, 5508). Cabinet again considered the assets test on 13 May 1985. Minsters were reminded that under the original proposal of August 1983 it had been intended to collect income and assets information from all pensioners. However, as finally implemented, the test was applied to only about 15 per cent of pensioners, on the basis that only about 2 per cent of pensioners would prove to exceed the assets threshold. Cabinet decided that over the next three years the remaining 85 per cent of pensioners would be asked to answer a simple yes/no question on real estate ownership and to estimate the total value of their assets if they believed that they exceeded the allowable limit.

On 17 August 1985 Cabinet agreed to Keating's submissions recommending the abolition of tax deductions for entertainment expenses and the introduction of a fringe benefits tax on employers who provided cars, loans, accommodation, meals and other goods and services to employees free or at reduced cost. Keating said there was widespread concern that businesses and high-income earners were receiving tax deductions for entertainment that was largely private. The restaurant industry had made the 'somewhat extravagant' claim that the tax would cost 10,500 jobs, but as the entertainment deduction cost $300 million in revenue foregone the government was in effect paying $28,500 to keep each job.

Selected documents

 Title or description of recordDate rangeSeries number
ItemMemorandum 2890, 9 May 1985, Assets test review strategy 1984–85NAA: A14039, 2890
ItemSubmission 3138, 5 August 1985, Entertainment expenses1984–85NAA: A14039, 3138

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