Tax concessions to the wealthiest fifth of households
are costing the federal budget about half as much as the total cost of
welfare payments, according to new research from Anglicare and the
left-of-centre Per Capita think tank.
Key points:
- Major tax concessions cost the federal budget around $135 billion a year in lost revenue
- The four biggest welfare payments cost the government around $124 billion
- Around half the tax concessions flow to the wealthiest 20 per cent, while only $6.1 billion went to the bottom 20 per cent
Anglicare, the peak body for a range of Anglican community services organisations, commissioned Per Capita to crunch the numbers on how much tax concessions cost the budget relative to welfare.
Using Treasury data, as well as various ABS figures and the University of Melbourne's HILDA survey, Per Capita calculated that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments — the aged pension, family assistance payments, disability benefits and Newstart — combined.
In fact, these tax concessions are costing the budget about six times as much as Newstart, a payment even business groups say is too low for job seekers to live on.
Moreover, the research finds more than half of the benefit from tax concessions goes to the wealthiest fifth of households.
Anglicare's executive director Kasy Chambers said the report was intended to highlight the largely "invisible" contribution of tax breaks to Australia's budget deficit.
"The cost to Australian taxpayers of the richest 20 per cent of Australians is actually a staggering $68 billion per annum," she said.
"Put another way, $37 from every Australian worker a week to keep on keeping Australia's richest 20 per cent rich."The total cost of all major welfare payments works out to about $80 per worker per week, or roughly double the cost of tax concessions to the wealthiest 20 per cent of households.
The report also highlights how skewed the savings are from tax concessions — the top 20 per cent get $68.5 billion and the bottom 20 per cent get about $6 billion.
Wealthy can get twice the benefit of low-income households
The report also used four hypothetical case studies to highlight how high-income households can end up gaining more from tax concessions than low-income households receive in government benefits.All four families have two children, but while the family living entirely on government benefits receives about $810 a week, a family with one high-income, full-time worker and one part-time receives nearly $1,400 in tax concessions and government benefits.
For this high-income household, the principal savings come from the lower tax rate on superannuation contributions and earnings, worth almost $35,000 a year, the capital gains tax exemption on the family home (almost $20,000) and negative gearing on investment properties (more than $9,000).
For a family combining the disability support pension with part-time work, government support totals just over $700 a week.
However, a family that has a small business earning more than $200,000 a year ends up saving $1,900 a week in tax concessions.
A large part of this saving is by being able to deduct household expenses such as a car and IT equipment and services as business costs.
Superannuation concessions, income splitting between the husband and wife, the capital gains tax exemption on the family home and negative gearing deductions are also big contributors to the tax deductions.
Ms Chambers pointed out that these hypothetical high-income-tax payers were doing nothing wrong under the current system.
"There is nothing illegal in what we've collected the numbers on here, they are tax rules," she said.
"The system isn't broken, it's actually been designed this way to benefit people at the higher end of the income spectrum more than those at the lower end."
Tax forgone doesn't equal revenue to be raised
It is important to note, and Anglicare acknowledges, that Treasury says revenue forgone does not equal revenue that would be gained if these tax concessions were closed off.That is because those affected by any tax changes are likely to find other deductions or concessions to minimise their taxable income.
For example, if you close off negative gearing then high-income people are probably less likely to buy investment property, maybe setting up a family trust instead or putting more money into superannuation.
Robert Carling, a senior fellow at the right-leaning Centre for Independent Studies, said the revenue forgone estimates in Treasury's Tax Expenditure Statement were also dependent on other assumptions, such as what is the "normal" taxation treatment of particular income.
"There has to be a benchmark, and that's how they come up with these tax expenditure figures," he said.
"In the latest Tax Expenditure Statement, the Treasury has said 'well it's not entirely clear what the benchmark is for superannuation tax expenditures', and they produced an alternative set of figures which came up with much lower tax expenditures."
However, Anglicare's Kasy Chambers said the point of the exercise was not to calculate exactly how much money could be raised, or which tax concessions should go, but to highlight the cost relative to welfare benefits.
"We want to be having that conversation that that kind of money's flowing that way whilst we consider the kind of cuts that we're seeing being made to the kind of money that flows to people on Newstart, on disability support pension, to families with children and to age pensioners," she told RN Breakfast.
'Preposterous' revenue raising ideas
The single most expensive tax concession is the capital gains tax exemption for the family home, which costs the budget an estimated $74 billion annually.Mr Carling pointed out that this concession made up about half of the total and was highly unlikely to be wound back.
"Are they seriously suggesting that when anybody sells their family home they would pay up to 47 per cent of the capital gain in tax?" he asked rhetorically.
"It's not something that any country in the world does, it's not something Australia has ever done, it's not something that any political party has ever proposed in Australia, it is absolutely preposterous."
However, superannuation tax concessions totalling $36 billion a year and the 50 per cent capital gains tax discount, worth an estimated $10 billion a year, are both extremely skewed towards high-income households.
Ms Chambers said negative gearing, estimated to cost the budget around $4.5 billion a year, was also a tax break which was both inequitable and failed to achieve any benefit, such as lowering housing costs for lower-income Australians.
Mr Carling said higher income Australians were already doing more than their share to fund the Federal Government.
"The Australian tax and transfer system, as it is at the moment, is very redistributive by world standards, it redistributes money from the rich to the poor to a larger extent than most other developed countries," he told ABC News Online.
"The top 20 per cent of income tax payers, who they are focusing on, pay more than 60 per cent of all income tax, notwithstanding these so-called concessions they're talking about."Although Mr Carling acknowledged this figure was based on taxable incomes, meaning there were likely to be some higher income earners who fell outside the top 20 per cent of taxable incomes due to the tax deductions and concessions they use.
FROM ABC site
Updated
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