New projections prepared by the Treasury show that show that Commonwealth Government spending on tax concessions will climb by 25 per cent over the next three years, reaching $52 billion in 2009-10.
By then, the Australian Government will give away one dollar in tax concessions for every five dollars that it actually collects.
Much of the projected increase in concessions is accounted for by the new treatment of superannuation announced in the May budget and due to take effect next year.
From July all super payouts taken by all Australians aged over 59 will be tax-free, regardless of size, and regardless of whether the money is taken out as a lump sum or a pension. The Treasury says that by 2009-10 the change will cost it $3 billion a year.
But it is hardly the biggest of the tax breaks available for superannuation.....
The biggest are those that tax contributions to funds
and the earnings of funds at only 15 per cent instead of the
taxpayer's marginal rate.
The Treasury says in total the tax breaks for super will climb to $23
billion by 2009-10, a sum that roughly equates to one dollar for every
ten dollars of tax actually collected.
The Treasury produces its so-called Tax Expenditures Statement each
December in order to keep track of government handouts that would
otherwise be invisible because they were in the form of adjustments to
tax rates.
In the Statement the Treasury says that whereas direct government
spending is subject to continuing scrutiny by the Parliament and the
media, tax concessions are often only scrutinised once - at the time
they are introduced. They are also "generally not as obvious" because
they are delivered in the form of an adjustment to rates rather than a
payment from the government.
This year's Statement was released quietly late last week after the
Treasurer's much better-publicised Mid-Year Economic and Fiscal
Review. In it the Treasury identifies more than 100 legislated tax
expenditures, the biggest apart from superannuation being the 50 per
cent exemption from capital gains tax available to anyone who has held
an asset for a year.
By 2009-10 the capital gains tax discount is expected to cost $5.3 billion.
The Treasury says other quantified exemptions from Capital Gains Tax
total $615 million. And it says the revenue lost from 11 of the
Capital Gains Tax concessions is too hard to quantify, among them the
exemption for gains made selling the family home.
Other large tax expenditures identified in the Statement include the
Senior Australians' Tax Offset ($2 billion by 2009-10), exempting
Family Tax Benefits from income tax ($2.7 billion), exempting the 30
per cent private health insurance refund from income tax ($1 billion)
and allowing tax deductions for donations to charities ($890 million).
Analysis
John Howard may or may not be the biggest spending Prime Minister in
Australian history, but he is certainly Australia's biggest user of
"tax expenditures". Tax expenditures are defined by the Treasury as
spending in disguise, dressed up as tax concessions.
Both spending and tax expenditure has the same effect. It takes money
from people such as you and me and gives it to a group the government
wants to assist.
Carers Benefits are an example of spending. They are paid to people
the government wants to assist out of money collected from you and me.
But they could operate differently, less openly. Instead of being
paid by cheque carers could be given a tax rebate, worth the same
amount.
The effect would be the same. Carers would be assisted at government
expense. There would be less money available for government spending
on other things.
But as a rebate the payment wouldn't show up in the accounts as
spending. It could be forgotten about, especially at razor gang time.
And it would seem less like welfare. As a "tax cut" it could even be
said to be cutting the size of government.
Direct government spending often goes to people in need. Tax
expenditures by contrast often go to Australia's most well off. The
biggest beneficiaries of the $17 billion offered in tax concessions
for superannuation this year will be those high income Australians who
have put the most super aside. The biggest beneficiaries of the $5
billion tax concession for capital gains will be those Australians who
have set aside the money to make capital gains.
The Tax Expenditures Statement released every year a few days before
Boxing Day is an attempt to make these invisible payments visible.
It is just a pity that the Statement itself is buried in the avalanche
of last minute reports and shopping that precedes Christmas Day.
It could be because the Government is embarrassed by the Statement.
It shows that Tax Expenditures have become the government's instrument
of choice for helping some of the Australians least deserving of help.
Back eleven years ago at the end of the Keating era tax expenditures
totaled $18 billion.
One dollar of tax was given away for every seven actually raised.
Under the Howard Government tax expenditures are on track to hit $52
billion, one dollar for every five that the rest of us actually pay.
