Tax concessions to the wealthiest fifth of households are costing the federal budget about half as much as the total cost of welfare payments, according to new research from Anglicare and the left-of-centre Per Capita think tank.
Anglicare, the peak body for a range of Anglican community services organisations, commissioned Per Capita to crunch the numbers on how much tax concessions cost the budget relative to welfare.
Using Treasury data, as well as various ABS figures and the University of Melbourne’s HILDA survey, Per Capita calculated that major tax concessions totalling $135 billion per year were costing the budget more than the four main welfare payments – the aged pension, family assistance payments, disability benefits and Newstart – combined.
In fact, these tax concessions are costing the budget about six times as much as Newstart, a payment even business groups say is too low for job seekers to live on.
The research finds more than half of the benefit from tax concessions is going to the wealthiest fifth of households.
Anglicare’s executive director Kasy Chambers said the report was intended to highlight the largely “invisible” contribution of tax breaks to Australia’s budget deficit.
“The cost to Australian taxpayers of the richest 20 per cent of Australians is actually a staggering $68 billion per annum,” she said.
Put another way, $37 from every Australian worker a week to keep on keeping Australia’s richest 20 per cent rich.”
The total cost of all major welfare payments works out to about $80 per worker per week, or roughly double the cost of tax concessions to the wealthiest 20 per cent of households.
The report also highlights how skewed the savings are from tax concessions — the top 20 per cent get $68.5 billion and the bottom 20 per cent get about 6 billion.
Wealthy can get twice the benefit
The report also used four hypothetical case studies to highlight how high-income households can end up gaining more from tax concessions than low-income households receive in government benefits.
All four families have two children, but while the family living entirely on government benefits receives about $810 a week, a family with one high-income, full-time worker and one part-time receives nearly $1400 in tax concessions and government benefits.
For this high-income household, the principal savings come from the lower tax rate on superannuation contributions and earnings, worth almost $35,000 a year, the capital gains tax exemption on the family home (almost $20,000) and negative gearing on investment properties (more than $9000).
For a family combining the disability support pension with part-time work, government support totals just over $700 a week.
However, a family that has a small business earning more than $200,000 a year ends up saving $1900 a week in tax concessions.
A large part of this saving is by being able to deduct household expenses such as a car and IT equipment and services as business costs.
Superannuation concessions, income splitting between the husband and wife, the capital gains tax exemption on the family home and negative gearing deductions are also big contributors to the tax deductions.
Ms Chambers pointed out that these hypothetical high-income-tax payers were doing nothing wrong under the current system.
“There is nothing illegal in what we’ve collected the numbers on here, they are tax rules,” she said.
“The system isn’t broken, it’s actually been designed this way to benefit people at the higher end of the income spectrum more than those at the lower end.”
Tax forgone doesn’t equal revenue to be raised
It is important to note, and Anglicare acknowledges, that Treasury says revenue forgone does not equal revenue that would be gained if these tax concessions were closed off.
That is because wealthy people, and their accountants, have a habit of finding new ways to minimise tax and will alter their behaviour to do so.
However, Anglicare’s Kasy Chambers said the point of the exercise was not to calculate exactly how much money could be raised, or which tax concessions should go, but to highlight the cost relative to welfare benefits.
“We want to be having that conversation that that kind of money’s flowing that way whilst we consider the kind of cuts that we’re seeing being made to the kind of money that flows to people on Newstart, on disability support pension, to families with children and to age pensioners,” she told RN Breakfast.
The single most expensive tax concession is the capital gains tax exemption for the family home, which costs the budget an estimated $74 billion annually and is unlikely to be removed.
However, superannuation tax concessions totalling $36 billion a year and the 50 per cent capital gains tax discount, worth an estimated $10 billion a year, are both extremely skewed towards high-income households.
Ms Chambers said negative gearing, estimated to cost the budget around $4.5 billion a year, is also a tax break that is both inequitable and fails to achieve any benefit, such as lowering housing costs for lower income Australians.