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.