Clamp down on tax breaks and poorly targeted spending, not essential social programs in Budget

20 April 2011

The Australian Council of Social Service is urging the Federal Government to focus on cutting wasteful and poorly targeted spending and tax breaks in the upcoming May Budget.

“If this is done, the Government can avoid making cuts to vital programs and benefits for people on low incomes,” said CEO, Dr Cassandra Goldie.

“A balanced approach should be taken to removing waste from both the expenditure and tax sides of the Budget. Indeed, much of the waste lies hidden from view in tax concessions, which are not scrutinised as carefully as direct expenditures.

“Despite the current rhetoric, Australia is not a high taxing country – in fact we are the eighth lowest taxing country among the 30 OECD nations. The problem is not that Australians are over-taxed, but that we are taxed unfairly and inefficiently.

“Many tax concessions mainly benefit higher income people, such as tax breaks on golden handshakes and income sheltered in private trusts and companies. It is simply not fair that the tax rate an individual pays is determined by their access to smart accounting advice and tax shelters.

“In our Budget submission, ACOSS estimates that reform in these two areas alone (that mainly benefit people on higher incomes) would raise in the order of $2.5 billion per year.

“One option is to tax private trusts in the same way as companies as recently flagged by Joe Hockey. Another is to tax golden handshakes akin to redundancy payments.

“We do not support any overall cut in family assistance such as Family Tax Benefits and child care assistance. These benefits play important roles in preventing child poverty, boosting workforce participation particularly for women, and making the tax system fair for families with children. But they should be better targeted towards low and middle income families than they are now.

“In addition to the current child care rebate, other poorly targeted direct expenditures include the Health Insurance Rebate (for example the subsidy for ‘extras’ cover), and the Education Tax Refund. These rebates go disproportionately to high income earners.

“The money would be better spent directly on health services and schools, and on better targeted child care assistance through raising the means-tested Child Care Benefit. Removing the Health Insurance Rebate for extras would alone save $1.2 B,” Dr Goldie said.

Media Contact: Fernando de Freitas 0419 626 155

See ACOSS Budget Priority Statement 2011-12