MEDIA RELEASE: Deloitte’s tax myths need busting

Deloitte Australia’s report Mythbusting tax reform has made a useful contribution to the tax debate, but is misguided in a number of areas, says Centre for Independent Studies Research Fellow Michael Potter.

“One of the key problems with the Deloitte analysis relates to the taxing of super,” Mr Potter says.

“Deloitte confirms that super tax concessions are nowhere near as large as the Treasury or many commentators argue.

The graph below shows the problem: many commentators argue that the cost of super tax concessions is around the same size as the cost of the aged pension. But this approach uses the worst possible benchmark and a more reasonable approach (using an expenditure benchmark) shows the costs of the tax concessions are much smaller.

 

“The natural conclusion of this is that it is unwise to dramatically scale back the tax concessions – but this is what Deloitte is recommending.

“If there aren’t large problems with the taxing of super, then it isn’t clear why the system needs as large a change as they propose.”

Deloitte’s changes to the tax on contributions are estimated to raise $6 billion in extra tax.

“Deloitte unhelpfully call this tax increase a ‘reform dividend’. A tax impost isn’t a reform dividend – Australia gets a reform dividend if growth increases, and large tax increases won’t generate this growth,” Mr Potter says.

“The Deloitte report usefully busts the myths that negative gearing is a tax loophole that is driving property prices through the roof, and argues that it is bad policy to remove negative gearing because it is used by the rich

“However there is an inconsistency in the report then arguing the Capital Gains Tax discount should be wound back particularly because the discount is more often used by the rich.

“Consistency would argue that it is poor policy to remove any tax concession simply because the rich are using it.

“Deloitte is also correct in arguing that there should be a CGT discount (to reduce the over-taxation of saving). But the report does not justify why the current approach is too generous or provide adequate analysis of why their proposed change to a discount of 33⅓% is an improvement.

“Much more detailed analysis is warranted before changes to super tax and CGT are recommended.”

Michael Potter is a Research Fellow at the Centre for Independent Studies