If Prime Minister Tony Abbott stopped giving superannuation tax breaks to the rich, restricted negative gearing, scrapped the capital gains tax discount and slapped a minimum tax rate on high-income earners, he could raise up to $19.5 billion in annual revenue, The Australia Institute showed.
New economic modelling by the institute, ahead of next week's federal budget, found the majority of the savings from such changes would come from high-income households.
The report took aim at the Abbott government for dishing out budget cuts that hurt the nation's poorest. It also criticises Labor's superannuation policy.
The institute's latest modelling on superannuation tax concessions showed that the benefits of super tax concessions are mainly accruing to the top 10 per cent of households, who claim 41 per cent of the tax concessions, worth $12.2 billion.
It said the top 20 per cent of households receive 60 per cent of tax concessions, worth $17.8 billion. This is compared to the bottom 50 per cent of households who only get 11 per cent of the tax concessions, worth $3.35 billion.
By making changes to super and these other tax breaks the government could save up to $19.5 billion a year, it said. Almost three quarters of the savings ($14.1 billion) would come from the top 10 per cent of households by income.
Although the full $19.5 billion may not be reached, as some of the rich will always try and look for other tax shelters, the government could still raise substantial amounts of revenue and use it to assist disadvantaged communities.
"If the government wishes to ensure everyone is enlisted to do the budget's 'heavy lifting', then identifying progressive revenue-raising opportunities is the most efficient means to do so," the report said.
The institute also proposed a series of other taxes including a super profits tax on banks, a financial transactions tax, an estate tax and restricting fossil-fuel subsidies. But it has not yet modelled the potential revenue savings from such changes.
The Australia Institute executive director Richard Denniss said if the Abbott government chooses to collect additional revenue from a higher goods and services tax, rather than closing loopholes benefiting the rich, it "will likely pay a high political price".
GetUp! commissioned earlier institute research of the cost of the tax breaks. Campaigns director Mark Connelly said "it isn't smart or fair to cut services for average wage earners while big multinationals and the wealthiest Australians can still exploit loopholes to avoid paying their fair share".
"Ending wasteful subsidies to multinationals and rolling back tax breaks for the wealthy on superannuation, negative gearing and capital gains would deliver tens of billions [of dollars] to the budget's bottom line."
Super concessions and negative gearing in firing line
Labor has proposed taxing superannuation incomes above $75,000 per year at 15 per cent and lowering the threshold for the 30 per cent tax rate on contributions and fund earnings from $300,000 to $250,000.
"These reforms are simply tinkering around the edges and will still see billions of dollars go to households that are unlikely to ever claim an age pension," the institute stated in its report. "A larger reform of super tax concessions is needed if taxpayers are to get better value for money."
It said the top 20 per cent of households that claimed the majority of super tax concessions, were "likely to be heavily represented in the 20 per cent of people who will not claim a pension in the future". "These concessions are having no impact on reducing the future cost of the age pension," it said.
The Australia Institute proposes not taxing people who earn up $37,000 per year anything on their contributions and setting the super tax rate on contributions for those earning between $37,001 and $80,000 at 10 per cent (lower rate than the current 15 per cent that they pay). For those between $80,001 and $180,000 it suggests hiking the rate to 22 per cent, and for those on more than $180,000, it proposes no super tax concessions.
"While the government is trying to push through unpopular spending cuts that mainly impact on low-income earners, cutting super tax concessions to high-income earners seem to be a much fairer, more popular, and more economically responsible option," the institute said in its report.
The institute said restricting negative gearing to new residential property investment and scrapping the tax discount would save the budget $7.4 billion per year. "As these tax shelters are primarily used by high-income households, most of the savings impact on high-income households," the report said.
It proposed a "Buffet Rule" of a minimum tax rate of 35 per cent for someone on $300,000 a year. This would stop aggressive tax minimisation by limiting how very high income earners could reduce their taxable income. The institute estimated that such a tax would save the budget $2.5 billion a year.
"Very high income earners pay large sums of money to tax advisors to find them tax loopholes," the report said.
"It is not efficient from the point of view of the economy as resources are being wasted circumventing the tax system. It is also inequitable since lower income households cannot restructure their incomes to take advantage of the tax loopholes and do not have the funds to pay for the advice."
