12 Mar 2013

7
There’s been a lot of talk in the media lately about the salary packaging concessions available to employees in the public hospital and not-for-profit (NFP) sectors – largely focused on whether or not they should be reduced, or scrapped altogether.

Unfortunately, the debate fails to educate the public about how these concessions work and why they deliver important benefits to our public hospitals and charities.

We want to provide some clarity about what these concessions mean, and why they’re so important to these sectors.

So, what’s a salary packaging concession?

Put simply, these concessions allow employees of some charities and public hospitals to effectively increase their income by paying certain personal expenses using pre-tax dollars. It is, fundamentally, a taxpayer subsidy helping public hospitals and organisations in our not-for-profit sector compete for employees with the private sector.

The most common benefit available for packaging is the ‘Threshold’ or ‘Cap’ exemption. This allows all employees of qualifying organisations to ‘claim’ expenses up to a capped amount each Fringe Benefits Tax year (1 April – 31 March).

In real terms, a public hospital employee earning $65,000 per annum would gain an additional $3,090 each year. For a charity worker on the same salary, it will increase their annual income by $5,455.

What do these concessions aim to do?

Our public hospitals, medical research institutes and not-for-profit charities use the concession to compete with private organisations for nurses, doctors, research scientists, cleaners, accountants and more every year.  If it were taken away, the remuneration package available to these workers would be smaller, and our charities and hospitals would struggle to attract and retain staff.

Critics of the concession like to point out that it’s worth more to higher income earners – and that’s true in the same way that a tax deduction is worth more to someone paying tax at a higher marginal rate –but what they often fail to mention is that it needs to be.

Public hospitals are trying to attract the best surgeons and care providers, and our medical research institutes the best scientists, not to mention all of the other important jobs that need filling.

But they’re competing with private sector employers who can pay vastly higher salaries.

Loss of this funding would force Australian charities and public hospitals to choose between losing employees to the private sector and finding the money to increase salaries. If current Treasury estimates are right, loss of these salary packaging concessions would leave a $2.7 billion hole in hospital and charity funding.

This is about more than just saving some dollars to plug a budgetary hole – it’s about maintaining the standard of services our charities and public hospitals are able to provide to Australia. And that’s why salary packaging concessions should be fought for.

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