Week 5: Fiscal Welfare Flashcards
what is fiscal welfare
= tax welfare (tax breaks for social purpose)
= tax expenditure
- social spending delivered as tax relief (tax allowances, exemptions, preferential tax rates, and revenue)
- allowances for dependent children, spouses and housekeepers mortgage relief
- the redistribution – of finances throughout an economy by means of taxes, subsidies and benefits.
examples of fiscal welfare
- family tax benefit b
- superannuation tax concessions
- private health insurance rebate
- low income tax offset
- negative gearing
- salary sacrificing
- concessional tax for capital gains
- seniors and pensioners tax offset
what terms does fiscal welfare rely on?
- taxable income
- tax deduction (tax allowance)
- tax rebate (offset)
- tax exemptions
what is tax deduction
amounts deducted from gross income to arrive at taxable income
what is tax rebate
amounts that reduce tax (family tax benefit, child care offset, dependent spouse rebate)
what is tax exemptions
income excluded from tax base, not subject to income tax (contributing to pension when some or all may later be taxed)
- reduces taxable income (can provide complete relief from tax or reduced tax)
what is taxable expenditure
cost in lost revenue from tax relief
why does fiscal welfare widen inequality
its more favourable to people on higher incomes
how is fiscal welfare used to support families
- intended to promote paid work and prudent saving
- tax credits help families and low paid
- tax rebates support children, dependent spouse, housekeeper
- helps make work pay
- aim to reduce poverty
- contemporary tax help (childcare rebates)
how does fiscal welfare assist people on lower-income
- low income tax offset
- seniors/pensioners tax offset
- exemption of certain income support benefits/pensions/ allowances
- exemption of child care benefit
what is fiscal welfares main criticism?
regressive: more resources go to those in higher income quintile and people in lowest tax band get the least (people with income so low to not be liable for tax get no benefit at all)
- unclear if it changes behaviour and activate the low paid
- distorts market behaviour
how does fiscal welfare assist with retirement provision
- superannuation rebate form of social insurance - government-legislated private provision for retirement
how does superannuation fiscal welfare work
-money paid by employer or pre-tax employee is taxed at 15% instead of normal rate
(tax saving of 30% for top income earners over $300,000)
(little/no saving for low income earners)
purpose of superannuation tax expenditures
- improve retirement incomes (through government, business, individual and family contributions)
- reduce government long-term expenditure (relieve pressure on age pension)
- redistribute income over lifetime
- alleviate poverty (not widely held view)
- wealth building, inter generational wealth
- dignity in retirement/adequate standard of living
critique of superannuation
- compulsory (workers might want money into raising family,mortgage, education etc)
- tax concessions for super biased towards high income earners
- expensive for gov.
- reliant of share market
- fees to fund managers 31 bil per year
- minimal impact on australia’s capacity to save for a self funded retirement
- women/ self employed disadvantaged
- baby boomers did not have benefit of full working life under super
