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Statement 4: Revenue
(continued)

Appendix A: Tax expenditures

This appendix contains an overview of Australian Government tax expenditures, as required by the Charter of Budget Honesty Act 1998 (CBHA).

Tax expenditure estimates should be interpreted with caution as they do not indicate the revenue gain to the Budget if tax expenditures were to be abolished. In addition, the characterisation of a provision of the tax law as a tax expenditure does not indicate a view on how an activity or class of taxpayer ought to be taxed.

A tax expenditure arises where the actual tax treatment of an activity or class of taxpayer differs from the benchmark tax treatment. The choice of benchmark unavoidably involves judgment and may therefore be contentious in some cases.

Consistent with most OECD countries, estimates of the size of tax expenditures reflect the existing utilisation of a tax expenditure, similar to Budget estimates of outlays on demand driven expenditure programmes.

  • This is known as the 'revenue forgone' approach which, in practice, involves estimating the difference in revenue between the existing and benchmark tax treatments but importantly assuming taxpayer behaviour is the same in each circumstance.

Revenue forgone estimates therefore do not indicate the revenue gain to the Australian Government budget if specific tax expenditures were abolished, as there may be significant changes in taxpayer behaviour were tax expenditures to be removed.

Care needs to be taken when comparing tax expenditures with direct expenditures as they may measure different things. In addition, estimates from different editions of the TES are generally not comparable because benchmarks may have changed.

The CBHA also requires the publication of an annual Tax Expenditures Statement (TES). The 2015 TES was published in January 2016 and provides a detailed description of Australian Government tax expenditures and, where possible, the estimated value or order of magnitude of each tax expenditure.

The information in Table A1 is derived from the 2015 TES and does not include the impact of decisions in this Budget on tax expenditures. Further information on tax expenditures is available in the 2015 TES.

Table A1: Estimates of large measured tax expenditures
Tax expenditure Estimate $m
2016‑17 2017‑18 2018-19 2019-20
Large positive tax expenditures        
E6 Capital gains tax main residence exemption — discount component 30,000 30,500 30,500 30,500
E5 Capital gains tax main residence exemption 24,500 25,000 25,000 25,000
C3 Concessional taxation of employer superannuation contributions 16,200 16,850 18,750 19,900
C6 Concessional taxation of superannuation entity earnings 14,100 15,350 18,050 20,850
H28 GST - Food 7,000 7,300 7,600 8,000
E11 Capital gains tax discount for individuals and trusts 6,840 7,600 8,570 9,090
H16 GST - Education 4,550 4,950 5,350 5,800
H19 GST - Health - medical and health services 4,000 4,250 4,550 4,900
H2 GST - Financial supplies - input taxed treatment 3,450 3,650 3,850 4,050
A35 Exemption of Family Tax Benefit payments 2,220 2,220 2,230 2,180
C5 Concessional taxation of non-superannuation termination benefits 1,950 1,900 1,900 1,900
A19 Medicare levy exemption for residents with taxable income below the low-income thresholds 1,960 2,040 2,130 2,230
B13 Exemption from interest withholding tax on certain securities 1,730 1,730 1,730 1,730
A17 Exemption of the Private Health Insurance Rebate 1,610 1,690 1,770 1,910
D10 Exemption for public and not-for-profit hospitals and public ambulance services 1,550 1,650 1,750 1,850
D14 Exemption for public benevolent institutions (excluding public and not-for-profit hospitals) 1,500 1,600 1,650 1,700
A24 Exemption of Child Care Assistance payments 1,550 2,185 2,210 2,240
H5 GST - Child care services 1,390 1,670 1,840 2,020
A49 Philanthropy - deduction for gifts to deductible gift recipients 1,230 1,280 1,330 1,370
F7 Concessional rate of excise levied on aviation gasoline and aviation turbine fuel 1,240 1,310 1,390 1,460
H20 GST - Health - residential care, community care and other care services 1,180 1,260 1,350 1,450
B73 Capital works expenditure deduction 1,035 1,070 1,105 1,145
H6 GST - Water, sewerage and drainage 1,040 1,140 1,240 1,360
B78 Research and development - non-refundable tax offset 850 860 850 850
Large negative tax expenditures        
F11 Higher rate of excise levied on cigarettes not exceeding 0.8 grams of tobacco -2,140 -2,235 -2,290 -2,375
F23 Customs duty -1,620 -1,340 -1,450 -1,540