How the tax system can make Australia’s workforce healthier, happier and more productive

Australia’s tax regime could help improve mental health and wellbeing outcomes for thousands of Australians, drive down the costs of poor mental health on business, and grow the national economy, according to PwC Australia.

It’s estimated one in five Australians will experience a mental health condition at some point during their lives, while one in three Australian workers will experience workplace stress, with poor mental health estimated to cost the economy hundreds of billions of dollars each year.

According to PwC Australia, Australia’s income tax and fringe benefits tax laws could be reformed to support better health and economic productivity by facilitating deductions for individuals for certain mental health and wellbeing costs not otherwise reimbursed, or by reinstating a new and improved version of the former net medical expense tax offset.

“Currently, the tax system does not support funding the net cost of an individual’s mental health and wellbeing. We should be incentivising people getting the mental health support and care they need - and the tax system has a key role to play,” said PwC Australia tax leader Chris Morris. 

“Improving the mental health and wellbeing of Australian workers clearly has tremendous health benefits, but there are opportunities to be had for businesses too - especially as mental health is estimated to cost the Australian economy between $200 and $220 billion each year.”

According to the Black Dog Institute, mental illness is now the leading cause of sickness absence and long-term work incapacity in Australia, while research shows that when individuals are both physically and mentally healthy, they are more productive, experience a greater quality of life, and better manage stress.

“COVID-19 has brought to the fore the importance of individual health and wellbeing, while the work environment has also changed. Employers are increasingly seeking ways to support the mental fitness of their employees and individuals are seeking to proactively put their wellness first,” said PwC Partner Kristin Stubbins.

How the income tax regime could be changed to improve the mental health and wellbeing of Australians

According to PwC Australia, the income tax law should allow for a specific deduction for designated mental health and wellbeing costs not otherwise reimbursed through Medicare, employers or private health arrangements - limited to costs for services provided by a qualified health professional, or the costs of a health professional certified as necessary treatment.

Deductions could cover costs for annual health assessments, mental health plans, or other eligible services or treatment. The extent of the deduction could be capped, including a limitation preventing a tax loss, and could take a similar form to the current specific deduction for self-education costs. 

Alternatively, the former net medical expense tax offset could be reinstated and extended to include alternative and holistic wellbeing plans and treatments. The tax offset could apply to net costs after allowing for Medicare and other reimbursements paid to a legally-qualified medical practitioner, nurse, chemist, allied health care provider, naturopath, or to a public or private hospital. 

“Allowing individuals access to a larger suite of health benefits, without adverse tax and financial consequences, will result in Australians being healthier, more caring and more resilient - and, in turn, provide more productivity and reduced health costs for the Government,” said Morris. 

How employers can be helped to provide more health and wellbeing benefits to their employees

While the Fringe Benefits Tax (FBT) regime facilitates concessional options to incentivise employers to provide wellness benefits to employees, the regime in its current format is limited either due to a monetary ceiling, reliance on work-related deductibility, or a narrow work-related exemption focus.

According to PwC Australia, there are four key reforms to FBT to make wellness benefits easier to provide, including:

• Allowing benefits to be deductible - By providing individuals with a mental health related income tax deduction, employers will be able to reduce the value of FBT on any mental health benefits provided to employees;

• Raise awareness of various exemptions - There are already exemptions that may apply to some wellness related activities - such as mental health support, fitness programs or for chiropractic services - clarity with respect to the availability and better awareness of these exemptions may be beneficial for employers;

• Increase the minor benefit threshold - The $300 minor benefit cap has remained unchanged since 2007, and no longer reflects today’s standard of living or inflation. An increase to the minor benefit FBT threshold would reduce the employer compliance burden; and

• Provide an exemption for the provision of private health insurance expense payment and residual fringe benefits payments, allowing employees the ability to salary sacrifice their private health insurance premium, effectively incurring the costs tax free, and meaning the exemption would not be limited to employers willing to pay for the premiums, but to any employee. Alternatively, and having regard to potential fiscal restraints, consideration could be given to providing a specific FBT exemption for mental health-related benefits.

Reforms to help businesses fund digital-enabled healthcare

While one in five Australians are estimated to experience poor mental health during their lifetime, COVID-19 is expected to amplify this issue, with one in two Australians expected to experience some form of a mental health challenge.

While many large employers offer Employee Assistance Programs in the form of counselling, phone support or psychology, such support services are often unable to be provided by small businesses due to barriers with cost.

According to PwC Australia, a Federal Government subsidy could be provided to small businesses to help them offer digital-enabled healthcare through digital tools and therapeutics. 

“Ensuring small businesses are able to offer these services will take the burden off the public healthcare system in the long-term as employees are able to better manage their own physical mental health and wellbeing,” said Stubbins.