Nothing sweet about the tax system as costs soar by $50 billion
One person’s tax concession is another’s impost. The cost of concessions has skyrocketed, putting more pressure on the budget.
The forecast cost of tax concessions on everything from high-priced homes to cream on summer pavlovas has soared by $50 billion in a single year, prompting calls for an overhaul of the nation’s tax system to prevent ordinary workers from bearing even more responsibility for fixing the federal budget.
New figures from the federal Treasury reveal it expects the cost of forgone tax through the capital gains tax concessions on the family home, investment properties and shares alone will reach a record $81.8 billion this year.
Every year, Treasury estimates the cost of concessions embedded in the tax system. They stretch from the lower rates of tax on superannuation, to the 50 per cent CGT concession, to the lower rate of excise imposed on brandy compared with other spirits.
The largest concessions – super, capital gains, the GST, rental deductions and work-related expenses claimed by workers – will this year cost the budget an estimated $184.1 billion. It’s a $13.4 billion, or 8 per cent, increase on what Treasury last year forecast for 2025-26.
Between 2024-25 and 2027-28, Treasury has increased its estimate for the cost of these concessions by a combined $50 billion.
The single largest change has been to the cost of the CGT concession, which Treasury has revised up by $20 billion on last year’s forecast.
Strong growth in property and share prices has driven up the value of the various CGT concessions. It has also pushed up the cost of the lower tax on superannuation by $8.9 billion by 2027-28, while rental deductions, used by landlords to reduce their taxable income, have grown by $3.2 billion.
A Senate committee is due to report in March on the current CGT concessions, their impact on the housing market, the size of the concessions and if they draw money away from productive parts of the economy.
A particular concern is the 50 per cent concession on the capital gains tax, introduced by the Howard government in 1999, that critics believe has contributed to the surge in house prices this century.
In its submission to the inquiry, the Grattan Institute noted that since the concession was introduced, house prices had climbed by 6.4 per cent a year compared with a 4.3 per cent annual lift in the ASX 200. Over the same period, inflation had averaged 2.9 per cent.
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Arguing the concession should be cut to 25 per cent over a five-year period, Grattan said such a change would raise $6.5 billion a year that could reduce “more economically harmful taxes and lower the tax burden on younger Australians, or pay for more support for low-income renters by boosting Rent Assistance”.
Tax expert Bob Breunig, director of the Tax and Transfer Policy Institute at the Australian National University, said the current concession on CGT might be too generous.