Deposit accounts most heavily taxed savings
02 October 2009
Head of the Federal Government’s tax review, Treasury Secretary Ken Henry, has identified deposit accounts as by far the most heavily taxed savings vehicle.
“Ken Henry’s revelation about the real effective tax rate on deposits (see attachment for chart) is a welcome endorsement of our message to the review that the tax burden on deposit accounts is punitive and unfair,” said Louise Petschler, CEO of Abacus – Australian Mutuals.
“We are excited that Mr Henry has confirmed that the review is ‘trying to find a more efficient and fairer balance in the taxation of savings’.
“Deposit accounts in Authorised Deposit-taking Institutions (ADIs) - banks, building societies and credit unions - are the simplest, safest, most accessible and best understood savings vehicle, yet they bear the heaviest tax burden.
“Mr Henry has revealed that for interest bearing deposits the effective tax rate for a middle-income taxpayer is around 50 per cent. We have given the Henry Review research that shows the effective rates of tax on interest earnings on ADI deposits are much worse taking into account family payments.
“The research shows tax rates exceed 100 per cent in real effective terms for some ADI deposit holders, depending on their family circumstances and the level of the inflation rate.
“Heavy taxation of deposits discourages domestic saving and pushes up the cost of funding for home lenders.
“Our research also shows that the taxation treatment of deposits disproportionately affects savers with relatively lower levels of wealth and income. A fairer system is needed.
“Credit unions and building societies have a long tradition of encouraging Australians to save. Our sector has 11.5 per cent of the household deposits market – more than NAB and just behind ANZ,” Petschler said.
For more information or to speak to Louise Petschler, please contact:
Pamela Eldridge
Senior Adviser – Media
02 8299 9024, 0423 843 790
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