Thursday, 3 December 2015
Standing Committee on Tax and Revenue; Report
On behalf of the Standing Committee on Tax and Revenue, I present the committee's report, entitled the Tax expenditures statement,together with the minutes of proceedings.
Report made a parliamentary paper in accordance with standing order 39(e).
by leave—I rise today to speak on the committee's report for its inquiry into the Tax expenditures statement.
Tax expenditure estimates represent the use of tax concessions provided to particular groups of taxpayers. Often, a tax concession has a particular policy goal, such as encouraging a valuable activity or improving equity.
In the late 1960s, the observation was made that tax expenditures are similar to government spending and deserve similar scrutiny. Following a report by the House of Representatives Standing Committee on Expenditure in 1982, Australia's first comprehensive tax expenditures statement was published in 1986.
Publishing a regular listing of tax expenditures is now a legal requirement under the Charter of Budget Honesty Act 1998.
The tax expenditures statement has been reviewed several times in the past decade. This includes by the Joint Committee of Public Accounts and Audit, as part of the Australia's Future Tax System review, and twice by the Australian National Audit Office.
The committee conducted a thorough review of the tax expenditures statement, building on the work of these previous inquiries. We found that the statement achieved its stated goal of facilitating scrutiny of tax expenditures and informing debate on the tax system.
However, it is important to remember that the statement is only a starting point for analysis. The committee noted that there is an unmet demand for more sophisticated information beyond the statement. The committee recommends that Treasury conduct prioritised reviews of tax expenditures, calculate a meaningful aggregate of tax expenditures and calculate the longer term costs and benefits of superannuation.
The committee found there were areas in which efficiencies could be found, and the statement improved.
For example, producing the statement is labour-intensive and there are significant costs to enhancing it. While Treasury draws on highly skilled staff to compile the statement, greater consultation with stakeholders may have benefits. These could include: improving the data; establishing benchmarks; and determining which expenditures should receive longer term estimates or should be calculated using the more sophisticated revenue gain method.
The resources issue meant that the committee also supported Treasury's suggestion that it put less effort into estimating smaller, more technical expenditures and focus on other parts of the statement. Further, the committee would support a budget bid by Treasury if it believed that additional resources were warranted to implement some of the report's recommendations.
Finally, the committee has made several recommendations that would improve the explanation of data and methods used in the preparation of the statement, as well as increasing the visibility of its limitations.
The tax expenditures statement is held in high regard around the world. It is an integral part of budget transparency, and it informs the national debate on taxation. While it can be improved, I commend Treasury on producing a document of high quality and technical complexity.
I would like to thank my fellow committee members for their assistance in the inquiry and acknowledge the support of the secretariat, so ably led by David Monk. I would also like to thank the parliamentary agencies of the Australian National Audit Office and the Parliamentary Budget Office. Their expertise and access to data mean that parliamentary committees are now well equipped to undertake technical inquiries of this nature.
Finally, I extend my thanks to the agencies, organisations and individuals that contributed to the inquiry through submissions or evidence at public hearings.
I commend this report to the House.
by leave—I also thank the committee members for their diligent hard work and their valued input into the preparation of the Tax expenditure statement report. I also thank the chair, the member for Forde, for his good work and diligent work also in producing a great report on a complex matter that is of great interest to the committee members. Tax expenditures might not sound very interesting to most people. They may be even less interested in tax expenditures statements, but they serve a very important purpose and play a very important role in decision making and policy setting for people to better understand what is done through tax expenditures. While I have the opportunity, I would also like to thank the committee secretariat for making the members of the committee look very good, because they do the hard work in putting the report together. So I thank the committee secretariat as well.
In its report the committee concluded that the statement is effective, noting comments by the Parliamentary Budget Office that it makes a significant contribution to budget transparency. The committee absolutely agrees with that. We think it is very important. The PBO also stated that it uses the document in its work. However, the committee also noted the statement's limitations—in particular that it is only a starting point for analysis. Like anything, it should not be the end-all of anything. We learned through this process that there is a lot of data. There are lots of different reference points. There are lots of places to start and to end. No-one should just take any one figure out of a tax expenditure statement as the be-all and end-all of everything. There was a lot of deliberation and debate over one particular area, which I will get to in a minute, which caused some controversy.
In the end, intelligent people looking at the TES would understand that you do not just pick one number out of those expenditures and say, 'Well, that's it; everything else hinges around that.' It is a much more comprehensive set of data and work. It does involve judgement from intelligent people—for example, in setting the benchmark. It also needs to be acknowledged that it is a really expensive exercise. It is resource intensive for Treasury to do this work. It might be convenient for all of us to want the best of everything all of the time, but there is a cost attached to that. The committee's view was that we need to be cognisant of that as well.
I would just like to add a little bit of history so that people can understand that tax expenditure statements are not something that we just dreamed up in the last couple of years or in the last term by either a Liberal or Labor government. Tax expenditure statements were initially proposed by Stanley Surrey of the US treasury department in 1967 because he felt and wanted to make the point that tax concessions given to particular groups were similar to giving them a government grant or payment. The same concept and ideas would apply here in Australia as well. The tax expenditure statements are really good for setting policy goals and achieving them as well.
In Australia in the 1970s, Treasury started producing some information on tax expenditures. However, it was not until 1982, following a report by the House of Representatives committee on expenditure, that we noted that we needed more comprehensive information. The government responded in 1986 with the first tax expenditure statements. So they have quite a bit of history not only here in Australia, but in the United States. Importantly, it was not until the Charter of Budget Honesty Act in 1998 that the statement was made a legal requirement. That was followed with the insertion of a list of the largest tax expenditures sourced from the statement as well.
The committee's inquiry follows on from the Auditor-General's reports in 2008 and 2013. It particularly covered the areas of prioritised reviews of tax expenditures, integration, improving the accuracy and better reporting and also, as I said earlier, the limitations around them only being a starting point for analysis that involves judgement and that they do cost a lot of time and money to put together.
The committee made 13 recommendations. They are good quality. I will only refer to recommendation 4 because I think it is important in the context of the work that was being done and some of the debate at the moment—that Treasury model the long-running interactions between superannuation and the age pension, develop present value estimates of the future costs and benefits of superannuation and its tax concessions, and publish those results. All of the other recommendations are equally as important.
There has been more attention paid to the tax expenditure statements this year than there probably has for quite some time. This attention has particularly focused on the very large size of the concessions that are allowed on superannuation taxes. This debate around the size and beneficiaries of super tax concessions, I am sure, will rage on regardless of the work of the committee or any of the unanimous findings in our report.
As a matter of fact, having access to quality data does help government and others to formulate policy. Tax expenditure statements are an important part of that policy process, as is each component such as the data on superannuation tax concessions, whether or not there is any other data which shows corresponding or offsetting tax collection of superannuation as well.
With those comments, I commend the report to the House.