The Government's plan to introduce a tax discount on interest income, which was outlined in a discussion paper issued in July, has received plenty of brickbats in the few submissions made in response to the paper.While all nine submissions praised the objective of removing the distortion in the taxation of savings compared with other forms of private investment, all but one argued that the Government would not come close to achieving its goal with the scheme in its current form.The submissions said the cap on the amount of interest was too low, the calculation of eligible interest too complex, and the application of the discount to foreign-sourced income counter-productive. The plan is to introduce a tax discount on net interest income. This involves reducing the amount of eligible interest income received by the amount of expenses incurred related to that income, before exempting from tax 50 per cent of the interest up to a cap of $500 in the 2012/13 financial year, and $1000 from July 2013.Eligible interest income includes interest that is the ordinary income or statutory income of an Australian resident taxpayer from either an Australian or foreign source. The Australian Bankers Association said it was concerned that the relatively low level of the proposed discount might not have a significant impact either in mitigating the tax-induced distortions that affect the allocation of capital or in increasing the level of national savings.The Institute of Public Accountants put it more bluntly: "The initiative does little in monetary terms to address the tax disadvantage that interest income has relative to other classes of investment."Most of the submissions urged the Government to work on increasing or eliminating the cap. CPA Australia said the Government should take its lead from the Mirrlees Review in the United Kingdom: "We note that a recent UK review, Tax by Design (the Mirrlees Review), conducted by the Institute for Fiscal Studies, recommended the complete removal of tax from bank and building society accounts."ING Direct argued for a simpler design, which would involve removing the percentage discount and replacing it with a tax-free threshold.The other big sore point was the proposal to apply the discount to net interest rather than gross interest. Most submissions argued that this would make the compliance process too complex and costly.The Australian Financial Markets Association said: "It is proposed to apply the tax discount on net interest income received by individuals. This involves reducing the amount of eligible interest income by the amount of expenses incurred related to that income, before exempting from tax 50 per cent of this net amount. "While it may be argued that the net interest approach provides conceptual purity, it introduces significant complexity into the policy detail and higher tax compliance costs relative to the granting of the tax discount on a gross basis."The law will have to define the meaning of both eligible interest income and the allowable expenses that relate to that income."The ABA said: "The policy assumes that individuals incur expenses in order to