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Australian Government Coat of Arms

Budget | 2014-15

Budget 2014-15
Australian Government Coat of Arms, Budget 2014-15

Statement 5 (continued)

Appendix B: Tax expenditures

This appendix contains an overview of Australian Government tax expenditures, as required by the Charter of Budget Honesty Act 1998 (CBHA).

The CBHA also requires the publication of an annual Tax Expenditures Statement (TES). The 2013 TES was published in January 2014 and provides a detailed description of Australian Government tax expenditures and, where possible, the estimated value or order of magnitude of each tax expenditure.

A tax expenditure arises where a provision of the tax law causes a deviation from the standard tax treatment that would apply to an activity or class of taxpayer: that is, from the benchmark tax treatment.

  • The choice of benchmark unavoidably involves judgment and may therefore be contentious in some cases. This choice should not be interpreted as indicating a view on how an activity or class of taxpayer ought to be taxed.

As noted in the 2013 TES, there is a particular question about the choice of benchmark for savings. This is because most household saving is concentrated in property and superannuation — both of which are taxed concessionally against the income tax benchmark. Owner occupied housing is the largest form of savings held by Australian households, and is taxed consistently with an expenditure tax benchmark. To help facilitate discussion and understanding of the impact of utilising different benchmarks, experimental estimates for superannuation using an expenditure tax benchmark were reported in the 2013 TES.

The level of the tax expenditure estimates the difference in tax liabilities relative to the benchmark. Consistent with most OECD countries, the standard methodology (the 'revenue forgone' approach) used to estimate tax expenditures is based on the existing level of activity utilising a tax provision. These estimates therefore do not indicate the revenue loss to the Australian Government budget of specific tax expenditures, as there may be significant changes in activity were tax expenditures to be removed. Tax expenditures estimated by the revenue gain approach do attempt to estimate these losses, and several of these estimates are included in the 2013 TES.

Care needs to be taken when comparing tax expenditures with direct expenditures as they may, for example, measure different things. In addition, estimates from different editions of the TES should not be compared because benchmarks may have changed.

The information in Table B1 is derived from the 2013 TES and does not include the impact of decisions in this Budget on tax expenditures. Further information on tax expenditures is available in the 2013 TES.

Table B1: Estimates of large measured tax expenditures
Tax expenditure   Estimate $m  
    2014‑15 2015‑16 2016‑17 2017‑18
Large positive tax expenditures
E6 Capital gains tax main residence exemption — discount component 17,500 17,500 17,500 18,000
C6 Superannuation — concessional taxation of superannuation entity earnings 18,450 21,700 24,100 26,950
C5 Superannuation — concessional taxation of employer contributions 17,800 19,150 20,700 22,300
E5 Capital gains tax main residence exemption 14,000 14,000 14,500 14,500
H29 GST — Food; uncooked, not prepared, not for consumption on premises of sale and some beverages 6,500 6,800 7,100 7,400
E16 Capital gains tax discount for individuals and trusts 5,410 6,970 7,640 8,310
H16 GST — Education 4,050 4,400 4,850 5,300
H19 GST — Health; medical and health services 3,600 3,900 4,150 4,450
H2 GST — Financial Supplies; input taxed treatment 3,450 3,650 3,850 4,050
C3 Concessional taxation of non‑superannuation termination benefits 1,800 1,750 1,750 1,750
A42 Exemption of Family Tax Benefit, Parts A and B 2,180 2,240 2,290 2,350
B16 Exemption from interest withholding tax on certain securities 1,820 1,820 1,820 1,820
B88 Statutory effective life caps 1,795 1,780 1,705 1,605
A20 Exemption of the private health insurance rebate, including expense equivalent 1,510 1,600 1,650 1,690
D11 Philanthropy — Exemption for public and not‑for‑profit hospitals and public ambulance services 1,500 1,600 1,700 1,800
D14 Philanthropy — Exemption for public benevolent institutions (excluding public and not‑for‑profit hospitals) 1,450 1,540 1,630 1,710
A19 Exemption from the Medicare levy for residents with a taxable income below a threshold 1,790 1,960 2,040 2,120
A62 Philanthropy — Deduction for gifts to deductible gift recipients 1,230 1,330 1,410 1,500
H21 GST — Health; residential care, community care and other care services 1,120 1,200 1,290 1,380
F8 Concessional rate of excise levied on aviation gasoline and aviation turbine fuel 1,280 1,340 1,400 1,470
Large negative tax expenditures
F25 Customs duty -2,870 -2,750 -2,900 -3,050
F12 Higher rate of excise levied on cigarettes not exceeding 0.8 grams of tobacco -2,120 -2,465 -2,885 -3,055