The Turnbull government’s plan to stop the level of taxation rising across the economy is putting Australia at odds with the OECD and much of the world.
New analysis of 80 countries – which account for 60% of the global gross domestic product – shows most have been steadily increasing their tax-to-GDP ratios since 2000, across the Organisation for Economic Cooperation and Development, Latin America, Africa, and major Asian economies.
Data show that between 2000 and 2015, the average tax-to-GDP ratio rose from 14.2% to 19.1% in the African countries analysed, and from 18% to 23.1% in Latin American countries.
In the OECD region, the average tax-to-GDP ratio rose slightly from 33.9% to 34%. Altogether, 75% of countries in the database increased their tax-to GDP ratios since 2000.
Australia has bucked the trend. Its tax-to-GDP ratio fell from 30.4% in 2000 to 28.2% in 2015 – almost the same level it was in 1990 (28%).
The majority of 35 OECD countries increased their tax-to-GDP ratios between 2000 and 2015, while just 16 reduced them.
Among the OECD countries that increased their tax-to-GDP ratios are: Korea (21.5% to 25.2%), Switzerland (27.4% to 27.7%), Japan (25.8% to 30.7%), New Zealand (32.5% to 33%), Germany (36.2% to 37.1%), Italy (40.6% to 43.3%), Austria (42.2% to 43.7%), Belgium (43.5% to 44.8%), and France (43.1% to 45.2%).
Among the OECD countries that reduced their tax-to-GDP ratios are: Ireland (30.8% to 23.1%), the United States (28.2% to 26.2%), Australia (30.4% to 28.2%), Israel (34.9% and 31.3%), Canada (34.8% to 32%), Poland (32.9% to 32.4%), the United Kingdom (33.2% to 32.5%), Norway (41.9% to 38.3%), Sweden (49% to 43.3%), and Finland (45.8% to 43.9%).
The OECD’s measure of taxation includes tax revenue from federal, state and local governments.
Australia’s federal budget, when discussing the tax-to-GDP ratio, only refers to commonwealth government tax revenue. The recent budget shows Australia’s tax-to-GDP ratio was 22.3% in 2015-16.
The difference between the federal budget tax-to-GDP ratio of 22.3% and the OECD’s figure of 28.2% is explained by the addition of state and local government revenue to measure Australia’s overall tax-to-GDP ratio.
The OECD data can be found in a new database that allows tax revenue information for 80 countries to be compared. It is the largest public source of comparable tax revenue data available.
It shows there is a great deal of variation in the mix of taxes used by countries to generate revenue.
Across all countries analysed, the three major sources of revenue are income and profit taxes, social security contributions, and taxes on goods and services. Property taxes, payroll taxes and other taxes represent a more modest source of revenue.
Australia relies more heavily on personal income tax than almost any other country in the world.
The OECD average for personal income tax is 24.4% (of all revenue), and for corporate income tax it is 8.9% (of all revenue), but Australia’s share of personal income tax is 41.5% (of all revenue) and its share of corporate income tax is 15.3% (of all revenue).
The OECD says Australia and New Zealand do not levy social security contributions, explaining why Australia’s reliance on income tax is so much higher.
Last week, the Turnbull government secured a big victory in parliament, convincing the Senate to pass its multibillion-dollar income-tax package, which will be rolled out in three stages over seven years.
The tax cuts will cost the budget $143.9bn in forgone revenue after a decade.
The government also wants to prevent Australia’s commonwealth tax-to-GDP ratio ever rising above 23.9%, and it wants to cut the statutory corporate tax rate for all companies from 30% to 25%, worth $65.4bn in forgone revenue by 2027-28.
An OECD working paper, which draws on the new database, says tax-to-GDP ratios have been converging in the 21st century as countries with low revenues have significantly increased their tax-to-GDP ratios, helping them to make “strong progress” towards mobilising domestic financing for development.
The paper says levels of tax revenues are now higher and more even across countries than at the turn of the century, and countries with the lowest revenues have experienced the largest increases in their tax-to-GDP ratios.
