Posted by John, May 16th, 2010 - under Tax expenditures, Tax policy, Tax the rich.



Bernard Keane has an article in Friday’s Crikey called Our tax expenditures are world beating but are they effective?

Tax expenditures are disguised grants through the tax system and they overwhelmingly benefit the bourgeoisie and the well off, not working class men and women. Last year they totalled $100 billion.

To put this in perspective the Rudd Government raises a bit over $300 billion in revenue and currently spends about $350 billion directly so the $100 billion worth of tax expenditures represents about one third of all government spending. It gets little scrutiny other than Treasury putting out a yearly tax expenditure statement which gets almost no coverage in the bourgeois press.

Here is my response to Bernard. It doesn’t raise wider issue like the fact that 40% of big businesses pay no income tax and of those that do most pay well below the headline 30 percent company tax rate.

John

Thank you Bernard for raising this important issue of tax expenditures. I have been talking about it off and on for about 25 years and it even gets a mention on my blog occasionally when I am ranting about tax matters.

I hammer the point to my students incessantly – why use the tax system when a grants system (in most cases) would be more equitable, better targeted, more transparent and in all probability subject to spending caps? (See last paragraph below for the answer!)

One minor point. The exemption of the family home from CGT is more costly than the superannuation concessions – from memory about $32 billion a year compared to around $25 billion for the various superannuation concessions.

ACOSS and Taxwatch both make the point that the non-taxation of the family home benefits the rich about four times as much as the less well off and also contributes to keeping new entrants into the housing market out of home ownership.

Imagine a grant scheme which specifically designed to give a bigger benefit to the rich than ordinary working families. Yet that is what most tax expenditures (including the CGT family home and superannuation concessions) deliver.

It would not beyond the intelligence of policy designers to impose some form of tax on the family home that hits the rich. I note the Henry tax report talked about a land tax and a bequest tax.

I also wistfully ask my students if we wouldn’t be better off using the $25 billion forgone in revenue on superannuation annually to increase the pension and spread its base. I am a fan of universality and then taxing the well off during their life times to cover the costs.

I don’t know the answer to my question by the way but suspect it would be more socially equitable to do that and more cost effective. I assume someone somewhere has done some of the figuring.

Anyway, thanks again Bernard for taking this issue up. It gets little coverage because most of the tax expenditures (disguised grants) disproportionately go to the bourgeoisie and the well off.