Tax expenditures are dodgy

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.

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9 Responses to Tax expenditures are dodgy

  1. Rabz

    Revenue foregone is the easiest estimate of tax expenditure, but the most inappropriate. Revenue gain figures are likely to be wishful thinking.

    Gee, I wonder if there are any recent, actual examples of this phenomenon?

    Oh, wait – from last week’s Oz:

    The mining tax (MRRT) that was originally forecast to produce $4 billion in revenue this financial year has raised just $232 million

  2. Fleeced

    So, by “tax expenditure” you basically mean taxes that don’t exist and/or aren’t levied? How is that an expenditure?

    And I thought you’re average welfare bludger had an entitlement mentality!

  3. Andrew of Randwick

    Stop talking about “Tax Expenditures” it is Orwellian. Just because some donkey said it in the 1960′s is not a reason to perpetuate its usage.
    Stop talking about “Government Revenue” unless you are talking about some SOE profit (after tax of course).
    Then I may less angry and able to read….

  4. Andrew of Randwick

    Quoted example of a Tax Expenditure – God I hate that phrase!!!

    As we saw during the car fringe benefit tax debate last year, however, most of the beneficiaries were individuals on modest incomes. So too with the meals and entertainment cards so common in the non-profit health industry – most workers in that industry are not high-paid doctors and specialists, but modestly paid nurses, cleaners, and hospital staff.

    The Salvation Army has admitted that it provides private-use cars and other benefits to its employees to avoid paying more group tax on increased comparable salaries.
    The Henry Tax review identified the fringe benefits tax exemption of not-for-profit employers (charities, government departments) as an area that was worthy of review (because it breaches competitive neutrality principles for getting employees or providing a service). The predominate tax dodge method was to salary package cars and then say they were only used 20% for private use, when everybody knew they were basically 100% private use.
    .

    Recommendation 9 (page 82): Fringe benefits that are readily valued and attributable to individual employees should be taxed in the hands of employees through the PAYG system.
    Recommendation 43 (page 88): NFP FBT concessions should be reconfigured.
    Recommendation 101 (page 100): The fringe benefits tax exemption for child care facilities provided on an employer’s business premises for the benefit of employees should be removed.

  5. motherhubbard'sdog

    Being taxed for living in your own home already occurs. It’s called rates.

    A broad-based land tax would actually solve a lot of the rent-seeking issues Australia faces. It could replace a host of much worse taxes and encourage the use of land for its best purpose.

  6. The Pugilist

    The mining tax (MRRT) that was originally forecast to produce $4 billion in revenue this financial year has raised just $232 million

    In greenlabor leftist fucktard (BIRM) speak this is a ‘tax cut’ to big miners, irrespective of what happens to their royalty payments…

  7. johanna

    motherhubbard’s dog – the trouble is, they never quite abolish all the taxes that they promised to, as we found with the introduction of the GST. They do, however, introduce new ones with vigour and enthusiasm.

    “Tax reform” has time and time again proved to be a situation where we pay up front, and the reforms lag a long way behind, if they ever materialise at all.

  8. motherhubbard'sdog

    johanna, I quite agree. However, that is the fault of those implementing the changes, not the changes themselves.

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