Part 3: Fiscal Strategy and Outlook (continued)

Attachment C: Tax Expenditures

This attachment provides an overview of the cost of Australian Government tax expenditures, as required by the Charter of Budget Honesty Act 1998.

A tax expenditure arises where the actual tax treatment of an activity or class of taxpayer differs from the benchmark tax treatment. Tax expenditures typically involve tax exemptions, deductions or offsets, concessional tax rates or deferrals of tax liability.

Benchmarks represent the standard taxation treatment that applies to similar taxpayers or types of activity. Benchmarks may also incorporate structural elements of the tax system; for example, the progressive income tax rate scale for individual taxpayers.

Determining benchmarks involves judgment and consequently, the choice of benchmark may be contentious. Benchmarks may also vary over time. The choice of benchmark should not be interpreted as indicating a view on how an activity or class of taxpayer ought to be taxed.

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. Estimates do not indicate the Budget impact if a tax expenditure were to be abolished.

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 should not be compared because, for example, benchmarks may have changed.

The information in Table 3.21 is derived from the 2013 Tax Expenditures Statement (TES) and, consistent with longstanding practice, does not include the impact of decisions taken since the 2013‑14 MYEFO. Further information on tax expenditures is available in the 2013 TES. Updated tax expenditure estimates will be published in the 2014 TES, to be released in January 2015. This will include estimates for any new or modified tax expenditures since the 2013 TES.