Australian tax officials are examining how to end the “systemic abuse” of work expenses, with dodgy claims made by millions of Australians robbing the budget of at least $2.5 billion a year – more than the cost of multinational tax avoidance.
In a submission to a parliamentary committee examining tax issues, the Turnbull government said more than $22 billion was claimed in work-related expenses last financial year, and revealed the Australian Taxation Office will provide Treasury with advice that could lead to sweeping changes policy changes.
The ATO previously announced it would target tax deductions on cars, travel, clothing, and mobile phones. It has now set its sights on the “other” category, which includes internet and phone bills.
The total value of expense claims approved by the ATO has now ballooned to $8 billion each year.
For example, more than six million people claimed $1.8 billion in clothing expenses last year, suggesting half the taxpayer population was required to wear a uniform or protective equipment.
“We have seen work-related expenses being over-claimed by both self-preparers and tax agents, and we will continue to increase attention, scrutiny and education on work-related expenses for tax time this year,” a spokeswoman for the ATO said on Tuesday.
The estimated $2.5 billion cost of dodgy deduction is similar to the revenue the ATO thinks is lost each year through multinational tax avoidance.
Tax commissioner Chris Jordan, who will face a Senate estimates hearing on Wednesday, last year claimed the cost to the budget of suspect work expenses could be higher than the gap left by multinational avoidance.
“While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant – in the vicinity of, or even higher than the large market tax gap of $2.5 billion – and that’s just for this category of deductions, work-related expenses,” he said. In its submission to the parliamentary committee, the government agreed it was “a matter of priority” to provide a clear estimate of the actual cost to government revenue of work-related expenses “to properly inform policy in this area.”
Treasurer Scott Morrison asked the parliamentary inquiry to examine methods for recouping the multi-billion dollar cost of dodgy expense claims and hoped the savings would help fund company tax cuts.
The Turnbull government remains determined to get its company tax cuts through the Senate or fight an election on the issue.
Mr Morrison ramped up his attacks on Labor on Tuesday, accusing shadow treasurer Chris Bowen of hypocrisy while brandishing a copy of Mr Bowen’s 2013 book that argued company tax cuts could be implemented when the budget was in surplus.
The shadow treasurer is facing increasing pressure from Labor’s left to rule out ever introducing company tax cuts, after last month stating he could consider such a move once the budget was healthy.
The budget is scheduled to return to surplus in 2020-21.