Carbon tax plan to cost $3.5bn

EXEMPTING agriculture and deforestation from the carbon tax will cost $3.5 billion a year when the system is running, says a new Treasury analysis released under the Charter of Budget Honesty.

By InvestSMART · 1 Feb 2012

By InvestSMART ·
1 Feb 2012

Comments

EXEMPTING agriculture and deforestation from the carbon tax will cost $3.5 billion a year when the system is running, says a new Treasury analysis released under the Charter of Budget Honesty.

The so-called Tax Expenditures statement tries to quantify tax income lost to concessions, on the basis that concessions often achieve the same effect as direct spending with the same impact.

But they are hard to measure with certainty. Treasury says for some there is not enough data to guess at how much tax would be paid without the concession. For others a mathematical calculation of the tax that would be collected without the concession will overstate its cost because without the concession people will change their behaviour to avoid the tax.

The biggest concessions are the $35.5 billion capital gains tax exemption for the family home, superannuation tax concessions totalling $30.2 billion, the $5.9 billion goods and services tax exemption for food and the $4.7 billion 50 per cent tax discount on capital gains. Treasury says growth in the value of tax concessions has slowed in the past two years because of the impact of the global financial crisis on superannuation returns.

Budget measures also helped. This year the government made less generous the formula to calculate motor vehicle fringe benefits. Worth an estimated $1.2 billion in 2011-12, the concession will cost just half that by 2014-15.

"It's a win for the environment," said Australian Conservation Foundation strategic director Charles Berger. "The new formula should put an end to driving to get up miles."

TOP 10 TAX EXPENDITURES

Capital gains family home exemption $35.5bn

Superannuation concessions $30.2bn

GST exemption for food $5.9bn

Capital gains tax 50 per cent discount $4.7bn

GST financial services concessions $3.8bn

GST exemption for health $3bn

GST exemption for education $2.9bn

Family tax benefit tax exemption $2bn

Tax exemption for private health insurance rebate $1.3bn

Tax exemption for charities $1.3bn

SOURCE: TREASURY, TAX EXPENDITURES STATEMENT

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

How much will exempting agriculture and deforestation from the carbon tax cost?

Treasury’s analysis estimates exempting agriculture and deforestation from the carbon tax will cost about $3.5 billion a year once the system is running.

What is the Treasury ‘Tax Expenditures Statement’ and why should investors care?

The Tax Expenditures Statement is Treasury’s attempt to quantify tax income lost to concessions (tax breaks) because these often have the same effect as direct spending. For investors, it highlights large policy-driven tax settings—like superannuation and capital gains concessions—that can influence after‑tax returns and government budgets.

Which tax concessions are the biggest and what are their costs?

Treasury’s top tax expenditures include the capital gains family home exemption ($35.5 billion), superannuation tax concessions ($30.2 billion), the GST exemption for food ($5.9 billion), the 50% capital gains tax discount ($4.7 billion), GST financial services concessions ($3.8 billion), GST exemption for health ($3.0 billion), GST exemption for education ($2.9 billion), and the family tax benefit tax exemption ($2.0 billion).

Why is it difficult to measure the true cost of tax concessions?

Treasury warns these estimates are hard to measure with certainty. For some concessions there isn’t enough data to know what tax would be paid without the break. For others, a straight mathematical estimate may overstate the cost because people would change their behaviour to avoid the tax if the concession were removed.

How did the global financial crisis affect the growth of tax concessions?

Treasury says growth in the value of tax concessions slowed over the past two years because the global financial crisis hit superannuation returns, which reduced the size and growth of related tax concessions.

What change was made to motor vehicle fringe benefits and what is the estimated impact?

The government adopted a less generous formula to calculate motor vehicle fringe benefits. Treasury estimated the concession was worth about $1.2 billion in 2011–12 and that the change will cut that cost roughly in half by 2014–15.

Did environmental groups comment on tax or fringe benefit changes?

Yes. Charles Berger, strategic director at the Australian Conservation Foundation, called the motor vehicle fringe benefit formula change "a win for the environment," saying the new formula should discourage driving longer distances just to accumulate travel miles.

Where do these tax concession figures come from and how should investors use them?

The figures come from Treasury’s Tax Expenditures Statement. Investors can use the statement to understand which tax settings (for example, superannuation and capital gains concessions) are large and potentially politically significant, but should remember Treasury cautions the numbers are approximate and behaviour changes can affect actual revenue outcomes.