I have a piece in The Conversation today looking at tax expenditures.
In practice tax expenditures are created when the actual tax system deviates from an ideal tax system to the apparent benefit of a narrow group of taxpayers. The difficulty is in establishing the ideal tax system – and, of course, who gets to define that “ideal tax system”.
When any policy issue revolves substantially around the question of “who gets to play god?” there is always trouble on the horizon. Economists seem to make this mistake a lot with economics Nobel Laureate James Buchannan arguing that economists enjoy playing god and imposing their own preferences through their policy prescriptions.
In the ideal Treasury tax system home owners would be taxed for living in their own homes. Who knew that buying your own home was a tax rort? The GST would apply to health and education, and there would be no superannuation tax concessions.
Then there are the measurement problems.
Please click through and read the whole thing.
The bottom line?
All this isn’t to say that tax expenditures aren’t important – but their definition is rubbery, their magnitude arbitrary, the largest expenditures politically not negotiable, and their incidence unclear. It is unsurprising then that the government and the Commission of Audit will be concentrating on those aspects of government spending that are well understood.