The family home has eclipsed superannuation as Australia's biggest tax break, with new figures showing the capital gains tax exemption on family homes cost the budget a record $61.5 billion in 2016-17, well in excess of the $33 billion lost to superannuation tax concessions.
The $61 billion is made up of $27.5 billion the government believes it would have got if it taxed profits made on the sale of family homes at the present capital gains tax rate, plus an extra $34 billion it would have got if the capital gains tax rate were the same as the marginal tax rate instead of being discounted by 50 per cent.
Treasury's annual Tax Expenditures Statement, required as part of the charter of budget honesty and released quietly on Monday afternoon, identifies 25 tax breaks each costing more than $1 billion, which between them cost close to $150 billion.
If abolished, they would close the budget deficit four times over.
The statement was mandated to ensure that so-called tax expenditures received the same scrutiny as cash expenditures. The tax breaks on the family home cost the budget as much as the age pension and Pharmaceutical Benefits Scheme combined. Even after the recently leglislated cuts, the superannuation tax breaks cost the budget as much as defence and foreign aid combined.
Often, government programs are arbitrarily defined as either cash or tax expenditures. The $6.5 billion private health insurance rebate was originally classified as a tax expenditure before being reclassified as a cash expense. The $19.3 billion family tax benefit is classified as a cash expenditure despite its name.
Three of the 10 biggest tax expenditures relate to the goods and services tax. They are the exemptions for fresh food ($6.9 billion), for private education ($4.5 billion) and private health ($4 billion). The concessional GST treatment of financial services costs $3.4 billion.
Other personal tax concessions in the top 25 include the concessional treatment of redundancy payments ($2.6 billion) a tax exemption for family tax benefit payments ($2.2 billion) and the private health insurance rebate ($1.5 billion), a tax exemption for childcare support ($1.6 billion) and the tax deduction for gifts to charities ($1.3 billion).
The budgeted cut in the company tax rate for small businesses will cost $1.1 billion in 2016-17, climbing to $1.8 billion in 2019-20. Separate modelling prepared for the Treasury finds the proposed company tax cut for big businesses would cost $8.2 billion per year by the time the rate fell from 30 per cent to 25 per cent.
Australia's top ten tax breaks
- Main residence exemption from capital gains tax: $61.5 billion
- Concessional taxation of superannuation earnings $16.9 billion
- Concessional taxation of superannuation contributions $16.9 billion
- Capital gains tax discount for individuals and trusts $9.6 billion
- Goods and services tax exemption for fresh food $6.9 billion
- Goods and services tax exemption for education $4.5 billion
- Goods and services tax exemption for health services $4 billion
- Goods and services tax financial services concession $3.9 billion
- Concessional taxation of termination benefits $2.6 billion
- Exemption from interest withholding tax on securities $2.3 billion
Source: 2016 Tax Expenditures Statement, Commonwealth Treasury, January 2017