Monday Message Board

It’s time for the regular Monday message board, where you are invited to post your thoughts on any topic. I don’t have anything noteworthy to say about the late Pope, but perhaps you do. Civilised discussion and no coarse language, please.

33 thoughts on “Monday Message Board

  1. But as NATSEM acknowledges they’ve left out two important revenue items ( ‘Caveats: Not State taxes and not tax expenditures).

    And these are both regressive, State taxes generally falling harder on low income earners, and tax expenditure overwhelmingly benefitting the wealthy.

  2. How do you make out that tax expenditure overwhelmingly benefits the wealthy, upper public servants aside? I was under the impression that outgoings were heavily aimed at health, education and welfare, or else were for things that spread their benefits across the board.

    To clarify, I don’t consider that subsidies to private education generally benefit the wealthy but rather generate human capital for the next generation, and so on. I don’t see many cases of regressive outgoings, and certainly no material ones. Or are you counting the inefficiencies of service provision as revenue streams to private contractors, or what?

  3. PM

    Following taken from paper by Julie Smith (http://www.aph.gov.au/library/pubs/rp/2002-03/03RP08.htm) in $m for 2004-05

    Superannuation and termination payment concessions 13 765
    Social security exemption Family Tax Benefit 3 380
    Senior Australians’ tax offset 1 600
    Capital gains tax discount for individuals 1 480
    Private health insurance 1 130

    Most of these benefit higher income earners much more than middle and low income earners (with the exception of FTB where the benefits are mainly to the middle class). In the case of the largest item, superannuation, this is due to taxing superannuation contributions at the concessional rate of 15 per cent instead of the taxpayers marginal tax rate.

    You could argue that this is good economics as these superannuants will not be claiming the age pension in future. However the subsidy amount is still much greater than the pension they forgo (my calculations are around half a million dollars for someone on $80k over the working life cf age pension of around $12k pa) and in any case, the Senior Australians’ tax offset effectively subsidises superannuants even further.

  4. My understanding is that ‘tax expenditures’ is the difference between what could have been taxed and what was taxed. By this standard, any difference between 100% of wealth/income and what ‘the rich’ actually paid is a ‘tax loss’ to the state. It is somewhat trivial to argue that tax expenditure favours the ‘rich’.

  5. SZ, it appears that you are classifying cuts in taxes as spending. I don’t deny that what you deny makes the taxes less progressive, it’s just that I don’t see anything in the funds outflows that tends to make that side of things regressive.

  6. Tax expenditure is usually targetted to specific purposes and groups in the same way that outflows are targetted. It represents a decision – a policy – about what activities should be supported or encouraged and should therefore be subject to the same analysis as spending. It is not the same as ‘tax cuts’ since it is restricted for a specific goal. And tax expenditure is subject to far less scrutiny. You cant really look at one side of the ledger and not the other, especially since tax subsidies or expenditure (call it what you will) amounts to at least $30b pa. And if you believe in transparency of government decision making, more attention should be paid to this.

    As an illustration, the Howard government abolished a program which spent about $100m on dental services for low income earners saying it wasnt needed. At the same time, tax subsidies worth $400m pa go towards dental care for those with private health insurance – overwhelmingly high and middle income earners. What sort of equity is that?

  7. Stephen, we know the definition – but its weak. I’m with Peter on this one. The decision to not collect a tax (how or why is simply a variation on a theme) is not spending on the ‘rich’. In fact income tax cuts would be an even greater benefit to the rich than the poor on this basis simply due to construction. Mind you, I happy to believe that pollies and public servants think our money is their money, consequently they might think and behave in a mmaner consistent with tax expentiture being spending. After all spending your own money on yourself is inconsistent with the modern welfare state.

  8. SZ, my disagreement with the categorisation is that you also brought out taxes. It’s not that we shouldn’t consider both areas, it’s just that if we already handled it under “taxes” it’s double counting to put it in again under “tax expenditure”. You’d be safe if you only dealt with one area or the other, but that way inconsistency lies.

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