The great tax swindle: how concessions and exemptions benefit the wealthiest

Extract from The Guardian

Australian economy

Opinion

Greg Jericho

More is spent keeping the wealthiest households wealthy than on Newstart or the disability support pension

@GrogsGamut

Tue 27 Mar 2018 04.00 AEDT

‘It is highly unlikely that the current GST exemption for fresh food would be changed but the blanket ban on GST debate means exemptions that benefit the wealthy also go unquestioned.’ Photograph: Dave and Les Jacobs/Getty Images/Blend Images

A report by Anglicare has found that eight of the largest tax concessions and exemptions cost just over $135bn a year in revenue foregone, and all disproportionately benefit high income and high wealth households. Anglicare’s report, The Cost of Privilege, uses research undertaken by Per Capita to highlight that some $68.5bn worth of taxation concessions and exemption goes to the wealthiest 20% of Australian households – more than the $68.1bn annual cost of the disability support pension (DSP) and assistance to families and children.
Each year the treasury department releases a statement on the costs of various taxation exemptions and concessions. But the Anglicare report goes further by breaking down who benefits.

The report looked at superannuation tax concessions, negative gearing, capital gains tax concessions, the use of discretionary trusts, the exemption from the GST of private health insurance and education, and the exemption from capital gains tax of residence.
It found that $68,55bn each year goes to the wealthiest 20% of households, compared with $6.1bn that goes to the the poorest 20%:

Moreover, the report argues that “in combination, these measures impose a cost on the federal budget that easily outstrips that of any single welfare recipient group”.

For example the cost of Newstart this year is just under $11bn, whereas the benefit of the concessional treatment of superannuation entity earnings and of employer superannuation contributions to the wealthiest 20% of households is equal to $20.8bn.
The report provides a number of family household case studies to demonstrate the difference in the cost of welfare compared with taxation exemptions and concessions.
One family with two children renting in outer Sydney for $400 per week, with one adult working part-time at 25 hours per week at the minimum wage, the other on the DSP, would receive a total of $35,934 a year from DSP, rental assistance, family tax benefit and the GST education exemption.
This is contrasted with a family with the main income earner on a $230,000 salary, with the other working part-time earning $60,000 and both salary sacrificing super up to the $25,000 concessional cap. This family owns their home outright in Melbourne and has one negatively geared investment property. They have private health insurance and both children attend private schooling.
This second family is the beneficiary of $71,705 a year in taxation concessions and exemptions:

While the sum of the first family is routinely represented as a handout for which they should be grateful (and for which they are subject to constant tests and insinuations of rorting), the second household is often portrayed as being self-sufficient and not a burden on the public purse.
The breakdown of the various tax concessions and exemptions shows just how weighted they are towards the wealthiest. The smallest share of the total benefit received by the wealthiest 20% of households is the 35% share it receives of the private health insurance GST exemption:

The inclusion of the benefits received by the wealthy from GST concession is somewhat counter-intuitive given consumption taxes are usually regressive – hitting the poorest hardest. And while that is true overall, the exemptions that were granted on education have actually ended up favouring the wealthy.
As I have noted previously, putting the GST on education would actually make it more progressive. This is because the wealthiest households are more likely to spend more of their money on education such as private schooling than do poorer households:

The same is the case for medical spending, which is also exempt from GST. While poorer households spend the relatively same or slightly more of their income on health expenses as do the wealthiest households, this is mostly due to poorer households also heavily skewed with older families.
However, wealthier households spend significantly more on private health insurance than do the poorer households, and that spending is GST-free:

Anglicare’s report estimates that 35% of the total of the GST concession on education goes to the wealthiest 20% of households and 38% of the value of the GST exemption for private health insurance:

By contrast the poorest 40% of households receive just 20% of the total benefit of those concessions.

That is the cost of political parties of various stripes ruling out any discussion of the GST – it is highly unlikely that the current exemption for fresh food would be changed but the blanket ban on GST debate means exemptions that benefit the wealthy also go unquestioned.
The biggest taxation exemption covered in the report, the capital gains tax exemption on the family home, is quite possibly the least likely policy ever to be changed. Despite the $74bn foregone in revenue each year, it would be an extremely brave political party to go to an election promising to tax the family home.

But even excluding that amount, there remain large sums on the table, $61.4bn each year – equivalent to 90% of the amount spent each year on disability support pension and assistance to families and children.