Tax Expenditures Statement

The Government has released its 2023–24 Tax Expenditures and Insights Statements (the TEIS). The TEIS provides estimates of the revenue forgone from tax expenditures, along with distributional analysis on large tax expenditures and commonly utilised features of the tax system.

The TEIS reports information about revenue the Government does not collect through tax expenditures such as:

• concessional rates that reduce the rate of tax that applies to certain groups or types of incomes
• exemptions that exclude certain groups from paying tax on income they receive
• allowances, credits or rebates that either deduct amounts of income from the tax base or refund a portion of taxes already paid
• tax deferrals that postpone paying of taxes until a later date.

A tax expenditure arises where the tax treatment of a class of taxpayer or an activity differs from the standard tax treatment (tax benchmark) that would otherwise apply. Tax expenditures can include tax exemptions, some deductions, rebates and offsets, concessional or higher tax rates applying to a specific class of taxpayers, and deferrals of tax liability.

Revenue forgone estimates reflect the existing utilisation of a tax expenditure and do not incorporate any behavioural response which might result from a change in or removal of the existing tax treatment. They measure the difference in revenue between the existing treatment and benchmark tax treatment, assuming taxpayer behaviour is the same and the existing tax treatment is removed entirely. A positive tax expenditure reduces tax payable relative to the benchmark. A negative tax expenditure increases tax payable relative to the benchmark.

Revenue forgone estimates are not estimates of the revenue impact if the tax expenditure was to be removed. In practice, taxpayers would alter their behaviour in response to the change of a policy. In many cases, an expenditure would be replaced or substituted with an alternative policy that is designed to achieve a similar objective, reducing the net impact.

The top 10 tax expenditures by revenue foregone for 2023–24 are:

1. concessional taxation of employer superannuation contributions — $28,550m
2. rental deductions — $27,100m
3. main residence exemption — discount component — $25,000m
4. main residence exemption — $22,500m
5. concessional taxation of superannuation entity earnings — $20,050m
6. CGT discount for individuals and trusts — $19,050m
7. deductions for work-related expenses — $10,800m
8. income tax exemption for NDIS amounts — $10,480m
9. GST exemption on food — $9,100m
10. accelerated depreciation for business entities — $7,400m

Other notable tax expenditures and revenue forgone are:

• simplified depreciation rules — $3,800m
• lower tax rate for small companies — $3,400m
• temporary loss carry-back for certain incorporated entities — $2,990m
• concessional taxation of personal superannuation contributions — $1,750m
• deductions for costs of managing tax affairs — $1,600m
• capital works expenditure deductions — $1,450m
• concessional taxation of capital gains for superannuation funds — $1,300m
• small business CGT 50 per cent reduction — $990m
• small business CGT 15-year exemption — $930m
• small business CGT retirement exemption — $670m
• additional deduction for digital adoption expenses — $550m

See the TIES for the full list.