Concessions for superannuation cost the federal budget almost $50bn a year while rental deductions, much of them for negative gearing, have jumped by more than half in three years, the annual Treasury summary of tax expenditures shows.
The ranking of revenue foregone in 2023-24, released on Wednesday, was headed by many of the usual groups, finding for example that shielding taxpayers’ main residence from capital gains taxes, saved them a combined $47.5bn for the year, up about a third from 2018-19.
Topping the list was concessions for super contributions, which cost the budget $28.55bn, up almost 23% from the previous year. Exemptions for earnings from super was ranked fifth largest at $20.05bn, down about 7% on the previous year.
Benefits for both types of super exemptions were skewed to higher income earners. In 2020–21, 90% of the contributions benefit went to people with above median income, and 30% went to people in the top tenth of taxable income earners.
The spread of benefits was even more uneven for super earnings, with the top 10% snaring 40% of the benefit. The Albanese government’s super concessions changes in its 2023-24 budget – doubling the tax on earnings from balances of $3m or more to 30% – will affect about 0.5% of the population with the full effect from 2027-28 on.
Another large cost to the budget came from investors claiming deductions for “maintaining and financing property interests”. In 2023-24, these deductions totalled $27.1bn, up from $17.1bn in 2020-21.
Treasury did not release the share of exemptions for rental losses – also known as negative gearing – for the most recent year. In 2021, though, 1.1m investors reported losses of $7.8bn and claimed a tax benefit of $2.7bn.
The spread of benefits in 2020-21 showed 80% of the tax reduction for rentals went to those above the median income, while 37% was collected by the top decile of earners, the government said.
The proposed changes to the stage-three tax cuts, announced last week, will only have a modest effect on revenue, the government has said. The increasing prospects of a second consecutive budget surplus in the 2023-24 year will also likely prompt calls for more cost of living relief.
The tax expenditure report provided targets for future changes to keep the budget close to or even in surplus, economists said.
“If you want to any kind of serious tax reform you’re going to need close off those holes in the income tax base,” the economic policy program director at the Grattan Institute, Brendan Coates, said. “With the federal budget facing a long-term structural deficit and big spending pressures looming, curbing these tax concessions should be a priority.
“[T]he latest Statement shows how personal income tax – the workhorse of the federal budget that accounts for just over 50% of total tax receipts – is also an increasingly leaky base due a labyrinth of concessions, deductions and deferral options available to the well advised.”
Coates said the super tax breaks, in particular, were more generous than needed as they were originally designed to help people replace or supplement the age pension. “[H]alf the tax benefits flow to the wealthiest 20% of households, who already have enough resources to fund their own retirement,” he said. “The cost of these concessions vastly outweigh the corresponding age pension savings.”
Property investors were also given excessive incentive to “load up on debt”, pushing up home prices in the process. “Reducing the CGT [capital gains tax] discount to 25% would reduce some of these distortions, without substantially reducing the rate of new home developments,” Coates said.
The director of the Australia Institute, Richard Denniss, said Australia had a low tax to total GDP ratio compared with many other nations but the scrapping of the carbon and resources taxes, among others, meant personal income tax carried too heavy a load.
Denniss, who debated tax reform with teal MP Allegra Spender at the National Press Club on Wednesday, said the commonwealth collected more money from the higher education contribution scheme (Hecs) than the Petroleum Resource Rent Tax (PRRT).
"The Australian Government collects more money from HECS than it does from the Petroleum Resource Rent Tax.
— Australia Institute (@TheAusInstitute) January 31, 2024
"Thank you, children. You're the backbone of our economy, not the gas industry."
Executive Director Richard Denniss at @PressClubAust@RDNS_TAI #auspol pic.twitter.com/osD3SWF4wF
“Thank you, children,” Denniss said. “You’re the backbone of our economy, not the gas industry.”
Revisions to the PRRT do reveal a modest clawback of revenue for the government, the tax expenditure report shows. The extra revenue amounts to $500m this year, rising to $800m by 2025-26 before dropping back to $500m by 2026-27.
