Imagine if Australia's treasurer Chris Bowen stood up on budget night and announced that the government was planning to send $1,000 cheques to everyone named Matt. No one else, just the Matts. I think this would be a bold, sensible piece of public policy, but the rest of the country might feel differently.

What if Bowen announced that instead of a cheque, all the Matts in the country would get a tax deduction that was worth an average of $1,000? The public would be just as angry, and I’d be just as fulsome in my praise for the far-sighted initiative.

Whether the $1,000 bonus was delivered as a cheque or a tax deduction, the effect would be much the same. The public purse would be worse off, and everyone named Matt would be better off. For this reason, it makes sense to consider tax concessions alongside direct spending when you’re thinking about how government shapes the economy. Special arrangements in the tax code are so similar to direct spending that economists call them "tax expenditures" – they amount to spending through the tax code.

We do a lot of spending through the tax code. Treasury estimates that all the concessions and deductions in the tax system are worth $115 billion this year, around 7.5% of GDP. Many of these tax expenditures exist for worthy reasons, like the income tax deduction for donations to charities. But much of the spending through the tax code is poorly designed – it distorts the economy and increases inequality.

Think about what would happen if the budget included a tax exemption for everyone who drives a red sports car. All of a sudden, people who otherwise might have bought a sensible hatchback would be shopping for mid-life crisis mobiles, just to get the tax concession. The manufacturers and retailers of other types of cars would suffer, while those in the red convertible business would experience a windfall gain. A tax concession like this distorts people’s behaviour, which in turn tends to make the overall economy smaller than it otherwise would’ve been.

Plus, people who can afford red sports cars are likely to be richer, on average, than the rest of the population. This means a tax expenditure directed towards red convertibles would involve the government effectively transferring money from poor to rich. Everyone else would have to pay higher taxes, or enjoy a lower quality of public services, to subsidise the convertibles of the upper classes.

While we don’t have much middle-class welfare in Australia in the form of direct payments to people, tax expenditures are another story. None of them are quite as egregious as a subsidy for red sports cars, but a few don’t fall far short of that mark. The tax concessions for superannuation contributions come to mind.

If you earn $40,000 a year, you pay 20.5 cents in tax on the last dollar you earn (including the Medicare levy). If that dollar goes into your superannuation fund instead, you pay 15c. This means you receive a tax concession of 5.5 percentage points. A typical full-time worker on $60,000 a year gets a concession of 19 percentage points, while a high income earner gets a whopping 31.5 points.

This isn’t middle-class welfare, it’s upper-class welfare.

The concession on super contributions cost the budget around $13bn this financial year. Nearly a third of the concession goes to the top 10% of income earners – the top 1% gets over 5% of the tax expenditure on super contributions. The concession distorts behaviour and increases inequality, just as a deduction for red convertibles would do.

I think it’s perfectly defensible to tax super contributions at a lower rate than ordinary income. But it’s hard to understand the logic of a system that taxes your normal income in a progressive way, so the richest pay more, while taxing super at a flat rate. The Henry tax review agreed, recommending that high-income earners should pay a higher tax rate on their contributions, leaving the tax concession distributed more evenly.

The government has taken two steps in this direction, by refunding the tax paid on super by low-income earners, and announcing plans to reduce the concession for people who earn over $300,000 a year. But Tony Abbott has pledged to scrap the refund for low-income earners, while the concession reduction for the richest hasn’t yet been legislated.

If politicians want to tackle "the age of entitlement", they should start with regressive tax expenditures. Paring back the worst excesses in the tax code could reduce the deficit, improve inequality, and make the tax system more efficient. Yet whenever talk turns to trimming tax concessions, commentators cry "class war". It’s enough to make a cynic suspect that all the criticism of "middle-class welfare" is just hollow rhetoric designed to mask an assault on social security for the poor.

Anyone truly concerned about needless spending on middle and upper-income households needs to take a hard look at spending through the tax code. If you don’t think this form of spending is important, I’ll happily take a $1,000 tax offset for Matts.