Treasury figures show capital gains concession dwarfs superannuation tax breaks
Main residence exemption costing budget $61.5bn, almost double the $33bn lost to super concessions
The federal government’s tax breaks for home owner-occupiers are dwarfing tax breaks for superannuation.
New figures show the capital gains tax concession on the family home is now worth $61.5bn, almost double the $33bn lost to super tax concessions.
The Treasury’s annual 2016 tax expenditures statement shows the top 25 tax breaks in Australia are worth a combined $148.6bn – compared with the budget deficit of $36.5bn.
Tax breaks for property owner-occupiers are the biggest by a significant margin.
Under the capital gains tax rules, capital gains on the sale of an individual’s main residence are exempt from CGT if the dwelling is used as a home. The Treasury believes that exemption is worth $27.5bn.
Profits made from the sale of “other” assets – assets other than an individual’s main residence – also receive a CGT exemption, worth 50% where the asset has been owned for at least 12 months. The Treasury believes that exemption is worth $34bn.
Combined, those concessions are larger than the tax breaks on superannuation contributions ($16.3bn) and superannuation earnings ($16.9bn).
Brendan Coates from the Grattan Institute says super tax concessions are a good target for tax reform because they are not achieving the goals policymakers want and their budgetary costs are larger than any supposed aged pension savings they are producing.
He said the Grattan Institute found in 2015 that more than half the benefit of super tax concessions flowed to the wealthiest 20% of households who already had enough resources to fund their own retirement.
Coates said despite the larger size of the capital gains tax exemption on the sale of the family home, it would have “big negative impacts” if it was abolished.
“If you abolished the CGT exemption you would need to allow people to deduct their interest and other holding expenses in owning the house from their income as compensation, and that would eat up a lot of the revenue,” he said.
“It would have the same kind of impact as stamp duty, it would discourage people from moving house, since home sales would crystallise the liability to pay capital gains tax so people would be reluctant to move.
“It could also tempt younger purchases to choose larger houses to reduce the number of moves they make over a lifetime and it could reduce the rates of home ownership by making housing less attractive.”
The annual tax expenditure statement is designed to make it easier for parliament, the media and the general public to scrutinise the government’s tax expenditures and to inform debate on the efficiency and equity of the tax system.
This year’s statement notes that parliament passed the backpacker tax on 1 December 2016. It applied a 15% income tax rate to the taxable income of working holidaymakers up to $37,000, from 1 January 2017.
The statement says it was not possible to produce estimates of the cost of the backpacker tax in the time available.
Australia’s 12 largest tax concessions
- Main residence exemption from capital gains tax: $61.5bn
- Concessional taxation of super earnings and contributions: $33.2bn
- CGT discount for individuals and trusts: $9.6bn
- Goods and services tax exemption for fresh food: $6.9bn
- GST exemption for education: $4.5bn
- GST exemption for medical and health services: $4bn
- GST financial services concession: $3.5bn
- Concessional taxation of non-superannuation termination benefits: $2.6bn
- Exemption from interest withholding tax on securities: $2.3bn
- Exemption of family tax benefit payments: $2.2bn
- Medicare levy exemption for residents with taxable income below the low-income thresholds: $2.1bn
- Local government bodies income tax exemption: $1.9bn
