Tax breaks on investment properties and superannuation are costing the budget nearly $40 billion a year with almost none of the benefits going to the under 30s, who remain locked out of the game, according to new research.
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Winners and losers of tax breaks
Tax changes will cost the Government money and only benefit the wealthy, according to new research.
The result has been described as a "double hit" on younger Australians, who are being sold a myth that the budget-busting concession regime is in place to help them get ahead. Instead, it is overwhelmingly older, wealthier people who access the breaks to buy and sell properties and to park income at discounted tax rates.
The findings come as Labor pledges to introduce new restrictions on the negative gearing of rental investments, limiting the ability of landlords to write-off interest payments against income for new, rather than existing homes in future. It would be accompanied with a halving of the current 50 per cent discount on capital gains tax when those properties are sold.
The government has slammed those proposals variously as raising too little money - projected at around $600 million in first 4 years - and as seriously market distorting. Yet the government, which recently retreated from a higher GST, is also considering changes to negative gearing, which could include a cap on the amount of deduction claimable, or on the number of properties able to be negatively geared.
Opposition leader Bill Shorten said Labor's policy would apply only to investment dwellings purchased after 2017, and would recover some $32 billion over a decade.
"This proposal of ours will cut the taxpayer-funded concessions, which are going to the fortunate few," he said.
Exclusive analysis of the costs and take-up of negative gearing, the 50 per cent capital gains tax discount, and superannuation tax concessions, shows the combined revenue loss - or tax expenditure - will amount to some $50 billion annually within three years, although under 7 per cent of that benefit will flow to the under 30s.
The data-crunching has been undertaken by the National Centre for Social and Economic Modelling using its own database of Australian households as well as the latest information released by the Australian Tax Office.
It was commissioned by the progressive think tank, The Australia Institute.
Executive Director Ben Oquist said the findings showed conclusively that keeping the current concession regime in place is neither in the national interest nor fair.
"In total, these concessions are worth more than $37 billion, yet the young receive only $2.4 billion of their value," he said.
"The capital gains tax discount and negative gearing are particularly unfair for the young, with the under 30s taking approximately 1 per cent of the benefit of tax breaks worth $7.7 billion a year and climbing.
The NATSEM research also shows that 73 per cent of the benefits of the capital gains tax discount, flows to the top 10 per cent of income earners.
All up, it says the under 30s share of the three concessions combined is just 6.4 per cent, whereas those over 50 years of age receive 53 per cent of the benefits. That works out to $2.4 billion versus $19 billion for those over 50 - many of whom are already well-off.
Labor's plan has been criticised by the Australian Council for Social Service for being too timid. In its pre-budget submission released on Tuesday ACOSS suggests removing the negative gearing concession altogether.
It says deductions for expenses related to investments in assets such as property and shares should should be limited to income received from those assets including any capital gains. After a year the change would save $1 billion per year. The special capital gains tax concession for small businesses would also be removed, saving a further $1 billion per year.
The submission suggests simplifying the tax concessions for superannuation contributions so that they phase out completely after $20,000 per annum. The 15 per cent tax rate on super fund earnings would be extended to all earnings including those of retirees, phasing in over five years, saving $1.5 billion per year. The saving would be redirected to spending on health and aged care services.
The Private Health Insurance Rebate would be abolished and half the saving of $3.4 billion redirected to public hospitals, community based services and preventive and dental health.
Private trusts would be taxed as companies, saving $1.5 billion per year. Excessive amounts of retained income within those trusts would be taxed at the top marginal rate, saving $1 billion per year.
Treasurer Scott Morrison will address the National Press Club on Wednesday, in a keenly awaited speech in which he is expected to give more guidance on the government's thinking in the tax reform debate.