Friday, January 30, 2009

Tax breaks cost what???

The Commonwealth Treasury has warned that spending on tax breaks is set to explode to $80 billion over the next 3 years unless reigned in.

The latest Treasury estimate of tax expenditures puts the cost this financial year at $67.4 billion, down from $73.7 billion last year at the height of the economic boom. It expects the cost to climb again quickly from next year reaching just short of $80 billion in 2011-12.

Roughly one third of the tax expenditures relate to superannuation, the most expensive being the one that taxes contributions to funds and the earnings of funds at just 15 per cent instead of the marginal rate. The fastest growing cost is the move to make all superannuation payouts tax free to Australians aged 60 and over from July 2007.

For the first time in a tax expenditures statement the Treasury has quantified the cost of exemptions from the Goods and Services Tax which it puts at $13.5 billion...

The biggest cost is 50 per cent tax exemption for income from capital gains, estimated at $10 billion.

The Treasury says in the statement that while direct government expenditures are annually “scrutinised by parliament, the media and the general public” in the Budget, tax expenditures are “generally not obvious” and are often closely examined only once, when they are introduced.

The estimates come as the tax review chaired by the head of the Treasury Ken Henry gets down to the detailed work of drawing up its draft proposals, due for release mid-year. Its final report is due in December.

Other large tax expenditures identified by Treasury include the Fringe Benefits Tax concessions for cars valued at $1.8 billion, exempting Family Tax Benefits from income tax valued at $2.5 billion, and exempting the 30 per cent Private Health Insurance Rebate from income tax, valued at $1 billion.

7 comments:

Anonymous said...

where does negative gearing fit into the tax breaks?

Marek said...

wouldn't that fall under

The biggest cost is 50 per cent tax exemption for income from capital gains, estimated at $10 billion

Anonymous said...

"Other large tax expenditures identified by Treasury include the Fringe Benefits Tax concessions for cars valued at $1.8 billion..."

Wow, that must be some car...

Marek said...

We could nearly but general motors with that 1.8b!

Anonymous said...

I have an idea, lets take an axe to the 50% CGT at $10 billion, the concessional tax treatment of cars at almost $2 billion; there is a saving of $12 billion right there.

Use the $12 billion to remove the 40% tax rate ($5 billion) the top tax rate ($1 billion), and with the remaining $6 billion increase the tax free threshold from the current $6000 to $10,000 giving all taxpayers earning more than $10,000 a $600 per year tax cut!

The above could be a start towards real tax reform!

Anonymous said...

Treasury Slush Fund manager, Mr Swan, if he is intelligent, would probably agree with your maths anon.

The tax-breaks-r-us brigade has had its tilt at the Treasury Slush Fund for long enough. They have just about broken the economy.

It is time for responsible spending of tax revenue and govt encouragement of industry that actually produces, creates, makes something (rather than encouraging the deliberate, artificial creation of inflated bubble assets such as residential rentals).

JonH said...

It always intrigues me that Treasury regards us not giving them money as "expenditure". Regardless of whether the tax breaks are good or bad (and some of them really encourage warped behaviour), that's a strange view of the world.

I wonder if Treasury would be so keen on the idea if a business counted revenue it hadn't received as an expense in their tax return?

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