Rort nation

One thing to bear in mind as we wend our way through the daily politics of the “tough” Budget over the next week is this: it is not really very tough at all. The one area of Budget largess that is most in need of reform, most corrupting to the economy, most inequitable to the nation, and therefore most politically difficult to address, are the special tax dispensations offered to various interests in the economy: stuff like super concessions, negative gearing and salary packaging rorts.

The IMF recently did a study of these rent-seeking tax giveaways and listed Australia as the OECD’s worst offender:

ScreenHunter_1051 Jan. 30 17.39

According to the report, tax expenditures are:

…government revenues foregone as a result of differential, or preferential, treatment of specific sectors, activities, regions, or agents. They can take many forms, including allowances (deductions from the base), exemptions (exclusions from the base), rate relief (lower rates), credits (reductions in liability) and tax deferrals (postponing payments).

The IMF believes that tax expenditures should be reformed since they:

…can have major consequences for the fairness, complexity, efficiency, and effectiveness of not only the tax system itself but, since they often serve purposes that might be (or are also) pursued through public spending, of the wider fiscal system.

It also argues that now is the time to roll back tax expenditures to help cut budget deficits. Regular reviews would increase scrutiny of outdated perks, and many could be replaced with more targeted measures, since most of the benefits are currently enjoyed by the wealthy rather than those needing help.

8% of GDP is some $130 billion in giveaways, none of which are being touched.

Tough Budget? I think not.

Houses and Holes

Comments

  1. The Patrician

    +1 HnH, Why would you introduce a universally unpopular new tax when there are tens of billions of $ in revenue pouring through unproductive and distorting tax loopholes in the collection bucket?

    It makes no sense.

      • migtronixMEMBER

        More stupid than corrupt? Not sure dude, sound like a dog chasing its tail — no clear winner…

    • migtronixMEMBER

      Because the people who “put you in the seat” are the ones making off like bandits from those unproductive and distorting loopholes?

      Remember how quickly the whole novated leasing thing was nipped in the bud last winter???

    • Yup, and if they go ahead with raising university fees like the CoA is recommending they will be selling our future short.

    • drsmithyMEMBER

      I have become more and more convinced over the last couple of years that the neoliberal right believe they have reached the endgame, and no longer need to try and pretend about their objectives any more.

      So not so much stupid or corrupt, but simply Do Not Give A Fuck.

      • it was my response to what I saw in Malaysia.

        Obviously the bumniputra are favoured, but there has tended to be a counter force from the rest.

        Not know.

        Last year there was a story of a Chinese ethnic school, 20 years into a 99 year lease of a plot of land adjoining their school. The land was owned by the federal dept of tourism and used by the school as a sporting facility.

        The dept of tourism decided to revoke the lease immediately. They were to sell it to some developers, and that really means the federal tourism minister gets a cut.

        The school decided to challenge the ruling in court, there is some semblance of rule of law from the british.

        This response from the minister was published in the paper (maybe not verbatim, but the infelction points are clear, and were used)

        “You people, you do not get in my way. You have to know your place. If you don’t, I will shoot you, I will kill you”

        The ruling class had become that blatant.

        I think we’d need 3-4 more terms of Liberal party rule before we got there.

  2. Exactly – not a tough budget. As none of the rorts were mentioned it looked spurious. Good to see Australia exceeds Italy and in corruption Sydney easily surpasses Rome. Go you good thing!

  3. moderate mouse

    No doubt those that benefit from the rorts would run the line that these tax breaks make our economy strong. To them I would say, look at the IMF’s graph and pick out Germany – the most dynamic economy in the EU and quite possibly the planet. They are the benchmark Joe. Now get to it.

  4. Think of all those highly skilled person hours that could be freed up for more productive purposes if the salary packaging ‘industry’ was wound up.

    All those emails to HR.

    All that time spent deciding on the next imported car upgrade

    All that time writing regs and bulletins and giving advice.

    All those poor quality GDP increments.

  5. Good post

    and included amongst this would be

    Negative Gearing on RE – Circa 7.5 Billion
    Capital Gains Tax dispensations on Residential real Estate – Circa ?????
    Superannuation concessions for high income earners – Circa ?????

    + novated car leases – Circa ????

    • Super concessions (~$40b) and CGT concessions (~$15b) actually cost a lot more than negative gearing. Car leases only about $500M.

      • They were the last figures I saw – I was just wondering if there was somehting more recent.

        So basically we have about a 63 billion revenue hole punched in the budget revenue side which doesnt get a skerrick of coverage from a CoA report or mainstream media.

      • Australia would be nuts to implement a CGT on owner-occupied dwellings. It would be just as distortionary as stamp duties – i.e. a tax on moving – and reduce labour mobility.

      • I think Gunna is referring to investment properties. There’s no way the family home will be taxed in any way shape or form in this country, so there’s no point discussing it.

      • Yep, sorry my bad.

        On investment properties, PPoR never entered my head – reflecting RE as a social good..

        But if residential real estate has become an asset class for the FIRE sector then …..

      • “It would be just as distortionary as stamp duties – i.e. a tax on moving – and reduce labour mobility.”

        Why not allow it to be deferred if another place of residence is purchased? That would presumably make it an effective PPOR estate tax for many people.

      • drsmithyMEMBER

        Why not allow it to be deferred if another place of residence is purchased? That would presumably make it an effective PPOR estate tax for many people.

        I believe this is how Switzerland and Germany do it.

  6. To rub salt to the wound, Ponzi Joe leaks confidential budget details to the mining robber barons by assuring them that the diesel subsidy will stay off the budget cut.

    Treasurer Joe Hockey has moved to head off a damaging fight with Australia’s mining industry, assuring them there will not be any cuts to the diesel fuel rebate in next Tuesday’s budget.

    Leaked confidential correspondence between top mining chief executives, obtained by the ABC, reveals deep anxiety within the resources sector.

    http://www.abc.net.au/news/2014-05-05/budget-joe-hockey-moves-to-assure-miners-over-fuel-rebate/5429482

  7. The Right is fond of claiming that tax exemptions and concessions are not gifts. In that case, let us all claim commuting costs against our wages/salaries, and that won’t be a gift either.

    • +1.9million.. Since ponzi little landlords can negative gear mega mortgage interest expenses against other incomes, renters should be allowed to claim rental expenses against other incomes too.

      • yup – it actually makes a lot more sense to be able to deduct work related expenses (including degrees, suits, transport, entertainment etc) as these are directly related to maintenance of the salary maker that earns the income being deducted from. In the case of neg gearing the investment asset costs are in no way related to the generation of the income being deducted from.

    • intertubernet

      +1

      Would go some way to compensating the underpaid commuter class who cannot afford inner city housing.

    • migtronixMEMBER

      +1 but why stop there? Internet/electricity/food basically everything, like a business working out “profit” from “expenditure”. Why can’t I remove everything and only pay tax on what was “saved”/profit?

  8. Another rort:
    http://www.abc.net.au/news/2013-08-29/fotinopoulos-why-does-the-church-still-get-a-free-ride/4918626

    So why does the government continue to provide financial assistance in the order of $31 billion annually, according to the Secular Party of Australia, to religious institutions that are becoming less relevant to Australians? One explanation lies with the outsourcing of a lot of social welfare to various religious organisations by the Howard government.

    Is the $31 billion number accurate? Does anyone know? If so, its almost as big as super concessions.

    • migtronixMEMBER

      +several billion.

      The concessions are what makes the tax system so corrupt and why I hate paying it!! It is not in any way equitable — and that’s on the collection side, on the spending side its just if not more inequitable!

    • No, it’s completely inaccurate and the Secular Party of Australia don’t have a clue.

      They mistakenly assume 15 billion of lost tax calculated on 30% of church *revenue*. Doh – tax is calculated on *profit* – and churches don’t typically have any profits. They budget to spend roughly what their estimated income is.

      A further 7 billion is on school grants. Do they think that this money would not be required if there where no church run schools? Of course not.

      I won’t bother to dissect the remainder of their fallacious reasoning. Churches don’t enjoy many tax breaks other than the ability to pay a portion of salaries as tax free allowances (same as all charities).,

      There’s a case for taxing churches on their commercial activities (which few have), but you’ll find that profits from these generally go into charitable works.

      • agree with Big Bird here, lets not get on the anti Christian bandwagon here …. thats a smoke screen thrown up by bankers who are the real parasites. The contribution of Christian charities is enormous and quite unparallelled in history.

      • migtronixMEMBER

        Rubbish!! They don’t pay any amenities taxes, property taxes, payroll taxes, GST, you bloody name it!

        As for church run schools? That’s not a school its an indoctrination zone so why should tax payers foot the bill?

      • As for church run schools? That’s not a school its an indoctrination zone

        Well said hipster.

      • migtronixMEMBER

        @Squirrel The contribution of Christian charities is enormous and quite unparallelled in history.

        So are their misdeeds!

      • Rubbish!! They don’t pay any amenities taxes, property taxes, payroll taxes, GST, you bloody name it!

        Churches have to register for GST to claim back GST, just like anyone else. If they do, they have to charge GST for any activity they charge a fee for – just like anyone else.

        I don’t know where you live, but in Brisbane churches pay council rates and other council charges just like everyone else.

        Please list exactly what taxes you are referring to.

        As for church run schools? That’s not a school its an indoctrination zone so why should tax payers foot the bill?

        Irrelevant to the point being made – whatever your opinion of church run schools, abolishing them would save very little money (it might even cost money).

        Generally, churches are treated in the same manner as charities and charitable organisations like sporting clubs.

        The savings documented by the Secular Party of Australia’s document have no basis in reality.

      • ‘As for church run schools? That’s not a school its an indoctrination zone so why should tax payers foot the bill?’

        So is the ABC. We foot the bill for that.

      • migtronixMEMBER

        @3d So is the ABC. We foot the bill for that.

        But you don’t want to!! Further we, despite your prevarications, don’t give our children over to the ABC — unless you’re a lefty-green socialist in which case…

      • migtronixMEMBER

        @bigbird Generally, churches are treated in the same manner as charities and charitable organisations like sporting clubs

        Generally not so much at all! How many churches have been closed down lately? Plenty of sportmans clubs do…

      • Generally not so much at all!

        Do you have any actual facts to substantiate your vague claims?

      • migtronixMEMBER

        @bigbird don’t know where you live, but in Brisbane churches pay council rates and other council charges just like everyone else

        Well you say that…

        Church owned land parcels in Queensland may be exempt, partially exempt or not exempt from land tax, depending on usage of the land parcel.
        Each beneficial user of property must complete a survey for each parcel of land to identify its use so that land tax can be accurately charged where applicable and no tax charged where appropriate.

        http://ucaqld.com.au/administration/property/land-tax/

        The existing rules – as they apply to churches

        Churches in Australia are generally endorsed as Tax Concession Charities under Item 1.1 in the Schedule to Sec 50-5 of the Income Tax Assessment Act 1997.

        Section 50-50 sets out some conditions that attach to such an endorsement.

        50‑50 Special conditions for items 1.1 and 1.2

        An entity covered by item 1.1 … is not exempt from income tax unless the entity:

        (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia; or

        (b) …

        (c) is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident; or

        http://www.corneyandlind.com.au/resource-centre/not-for-profit/charity-tax-reform-ubit/in_australia/

        Tax exemptions to Australian churches are costing federal, state and local governments more than $500 million a year, new figures show.

        Critics of religious exemptions claim taxpayers are subsidising church and charity-run commercial operations, which sometimes use tax advantages to undercut commercial rivals. They say this is unfair competition and distorts markets.

        http://www.theage.com.au/news/national/churches-reap-the-benefits-of-belief-500-million-in-taxexemptions/2006/04/28/1146198351877.html

        And so on and so forth…

      • Finally, some facts. Thank you.

        Tax exemptions to Australian churches are costing federal, state and local governments more than $500 million a year, new figures show.

        $500 million? That’s a far cry from the absurd $31 billion the Secular Party comes up with – less than 2% of it.

        I never claimed churches were receiving no tax exemptions – I was disputing the Secular Party figures.

        It would be interesting to calculate what value the taxpayer gets for $500 million – and to compare it to the value the taxpayer gets from subsidising other community organisations like football and cricket clubs.

        Critics of religious exemptions claim taxpayers are subsidising church and charity-run commercial operations, which sometimes use tax advantages to undercut commercial rivals. They say this is unfair competition and distorts markets.

        I agree – as I said in the very first post I made, “There’s a case for taxing churches on their commercial activities”.

        In practice, it’s actually pointless, because churches aren’t out to make a profit. If you taxed church run businesses, they would simply not make a profit by donating any excess profits to church charities.

      • drsmithyMEMBER

        So is the ABC.

        If you can’t change the channel, you should get your TV fixed.

        We foot the bill for that.

        We foot the bill for private and church schools that receive public funding, as well.

      • @bigbird do you have any facts?!?!?!?! You provided 0

        You disagreed with my analysis about the claimed $31 billion? Where’s the flaw?

      • migtronixMEMBER

        @big bird I disagree with assertion that churches are treated like sports clubs. Where’s the evidence?

      • @big bird I disagree with assertion that churches are treated like sports clubs. Where’s the evidence?

        They are non-profits, like sporting clubs. See here

        https://www.ato.gov.au/Non-profit/Getting-started-for-non-profit-organisations/Is-your-organisation-non-profit-/

        That doesn’t mean they are treated precisely the same, but the major charitable tax concessions apply to both.

        All this is pretty irrelevant to the original document cited though, which can’t tell turnover from profit, and fails to account for schools having to be funded no matter who runs them.

        I’m done with this topic.

  9. It is a rort, saying that I am awaiting delivery of my salary packaged vehicle which I rushed through last week thinking Abbott might chop the perk in the budget.

      • +10.. If Crocodile Dundee were to land in Germany or Portugal, he will probably pull out his NGed investment property tax refunds and say “Thats not a rort.. THIS is a rort” 🙂

  10. There is no way the Liberals would ever get rid of negative gearing. The property lobby is one of their largest donors, as you can see from recent ICAC hearings.

    Salary packaging will be unlikely to go as well, given their bleating all for it last year when Labor tried to do the same.

    • Labor definitely won’t, and I’m 99% sure the Greens wouldn’t either. Otherwise why wouldn’t they just scream it out and get, say 30%+ of the vote?

      Removing NG would probably crash property practically overnight.

  11. ceteris paribus

    This post is THE ANSWER to the small budget matter.

    Just tell Sinodinos to ring up Brogden and the rest of Liberal party to tell them this is the way to go.

  12. migtronixMEMBER

    I LOOOOOVE twitter accountability:

    From CFMEU National:

    Tony Abbott to Coalition Federal Election Campaign –

    “The worst DEFICIT is not the budget deficit but the TRUST deficit,
    This election is all about TRUST”

    ROFL!

    Twitter is a 24/7 Jon Steward hosted show

    EDIT: “We’re from the Coalition and we’re here to help (our rich mates get richer)”