People living in remote Tasmanian communities could lose a tax concession, while low-income earners in the Central Highlands may be eligible for a remote area allowance, if the federal government adopts new recommendations from the Productivity Commission.
The commission's new draft report deals with remote area tax concessions and payments, with a view to identifying opportunities for reform.
It recommends abolishing the zone tax offset (ZTO), which it labels an "ineffective and blunt instrument" and redistributing the eligibility boundaries for the remote area allowance (RAA).
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The commission writes that for low-income earners living on remote islands "ending the concession would represent a more substantial loss" than for those in other remote areas.
"In a few of these special areas ... the cumulative impact from the abolition of the ZTO would be larger," the report reads. "Over time, wages may adjust (at least partially) in response to the change, limiting ... direct impacts."
Flinders Island and King Island residents are currently in Ordinary Zone B under the ZTO, which entitles them to a base rebate of $57 with 20 per cent dependant loading. The average claim in Zone B areas equates to $133.
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The draft report recommends that the new RAA boundaries exclude about 25,000 recipients in Darwin and encompass about 68,000 new recipients across Australia, including the Central Highlands.
The RAA - which low-income earners are eligible to claim - amounts to about $470 a year for individuals and $1190 a year for couples with two children.
A state government spokesperson said the government made a submission to the commission's inquiry but would need to review the draft report in detail before considering its "next steps".
A Social Services Department spokesperson said the federal government would consider the recommendations when the commission delivers its final report early next year.