Here we go again: the atrocious, shameful and laughable Tax Expenditure Statement has been released by Treasury. And again the central assumption is that all income and capital gains belong to the government and anything that is returned to taxpayers is a concession or tax expenditure.
Memo to John Fraser, new Treasury secretary: I know it is a legislative requirement to produce a TES, but not this document. Way too many resources are devoted to making up figures for this fairy story (and note the enormous numbers of items which are simply starred). There is even a concession that a very large number of the estimates have low reliability.
A few pages would suffice.
Is there anything interesting in the 2014 TES?
- You’ll all be pleased to note that capital gains tax exemption of the main residence, including the discount component, is now ‘costing’ $46 billion. This is notwithstanding the fact that no one is talking about imposing a capital gains tax on owner occupied housing, but what the heck.
- (Maybe next year, the Treasury could estimate the revenue foregone in not taxing the imputed rents of owner occupied housing. Oops, perhaps I shouldn’t have mentioned that.)
- And then’s the favourite of the Left – the revenue foregone from what is regarded as the concessional taxation of superannuation: $30 billion. It’s less on a revenue gain basis: $27 billion. (Note to Treasury officials: superannuation is saving and so the appropriate comparator is the consumption tax not income tax.)
- Actually, I think there is one figure in the TES that the government should take note of: the combined impact of the egregious exemption from FBT of public hospitals, ambulance services and public benevolent institutions (including some of the appalling ‘public health’ organisations) – think wealthy doctors paying very little tax – now amounts to nearly $2. 8 billion per year. (Come on down, Joe, this is low hanging fruit.)
I would also add that lots of the estimates look very wrong and therefore are. Take imposing the GST on education: in revenue foregone terms, the figure is $3.95 billion but in revenue gain terms, it is $3.55 billion. The implicit elasticity is way too low and one wonders how any estimate was made in the first place. There are lots of other obvious errors.
It’s worth reading Treasury’s explanation of all this:
A tax expenditure arises where the actual tax treatment of an activity or class of taxpayer differs from the benchmark tax treatment.
• Tax expenditures typically involve tax exemptions, deductions or offsets, concessional tax rates and deferrals of tax liability.
• A positive tax expenditure reduces tax payable relative to the benchmark. A negative tax expenditure increases tax payable relative to the benchmark. Benchmarks represent a standard taxation treatment that applies to similar taxpayers or types of activity.
• Benchmarks may also incorporate structural elements of the tax system; for example, the progressive income tax rate scale for individual taxpayers.
• The benchmarks used in the 2014 TES are outlined in Appendix A. Determining benchmarks involves judgment. Consequently, the choice of benchmark may be contentious and benchmarks may vary over time.
• To facilitate discussion and understanding of the impact of using different benchmarks, the 2013 TES included an illustrative case study which showed the differences in the estimates for superannuation tax expenditures if an expenditure tax benchmark was used rather than the usual income tax benchmark – see Appendix A, 2013 Tax Expenditures Statement. Although that exercise has not been repeated for this year’s TES, the conceptual points that were discussed last year remain.
The choice of the benchmarks in the TES tells us all you need to know about the depth to which the intellectual integrity of Treasury has sunk.