New economic modelling has found that Australia’s tax system “overwhelmingly benefit(s) high-income, high-wealth men”, with experts saying that scrapping the concessions that benefit wealthier Australians would boost retirement incomes for poorer Australians.
According to new research by The Australia Institute, the tax system is heavily staked toward higher-income and wealthier households, which enjoy the benefits of four particular tax concessions, including negative gearing, superannuation tax concessions, capital gain tax discount and excess franking credits.
The authors of the paper, Matt Grudnoff and Eliza Littleton, say the modelling showed that the four tax concessions help the rich get richer, with the top 10 per cent of income earners gaining nearly 40 per cent of the benefits, while the bottom half of income earners receive just 18 per cent of the benefits. The report showed that the top 20 per cent of households by income received 64 per cent of the benefit of excess franking credits, while the top 20 per cent of households by wealth received 83 per cent.
“While the tax system, particularly the income tax system, acts to reduce inequality and lessen this power imbalance, tax concessions act as an important leakage from the tax system,” the report says. “Some of these tax concessions are very large and, as this paper shows, mainly go to those on high incomes, who are wealthy and who are men. These four tax concessions add to both economic inequality and gender inequality.”
According to Grudnoff and Littleton, the only way to reduce the inequalities caused by the tax system would be to scrap the tax concessions. The authors called for a “comprehensive” plan to tackle the causes of inequality and for tax concessions to be wound back, which they said could increase revenue that could be used to boost retirement incomes.
“Scrapping or curtailing these tax concessions would not only reduce inequality but it would also raise billions of dollars that the government could use to further reduce inequality,” the report said. “Inequality plays a key role in power imbalances. These four tax concessions add to both economic inequality and gender inequality.
“A comprehensive plan to tackle all the causes is required. Reducing economic inequality is an important part of any plan and winding back these tax concessions not only reduces inequality it also raises revenue. This revenue could make space in the economy for childcare, crisis accommodation, boosting retirement incomes for those in poverty, just to name a few. There are a multitude of policies and programs that could help reduce economic and gender inequality.”
The report said that while it was wealthier households in general that reaped the benefits of the concessions, it was statistically more likely to be men directly. It explained that while men do pay more tax – as they earn higher incomes than women on average – the benefits received by men were “outsized”.
The report stated that all four tax policies together cost $60.1 billion a year, $42 billion of which is distributed to men, who receive more than double the $18 billion women receive
“This is because men earn more income and have on average a higher income than women,” the report said. “But even accounting for this, men get an oversized benefit from these tax concessions. That is, they pay 65 per cent of the tax but get 70 per cent of the concessions. For women, it is the opposite: they pay 35 per cent of the tax but only receive 30 per cent of the concessions.”
The report argued it was “counterintuitive” to give larger super tax concessions to men, because it is women on average who have less super when they reach retirement. “A well-thought-through retirement incomes policy would give larger concession to those who were less likely to be able to fund their own retirement,” it said.