Jim Chalmers has reinvigorated the economic policy debate with all the talk now about his economic reform roundtable.
Unfortunately, the biggest voices invariably are those who desire to help themselves. The other problem is the debate remains bounded in purposeful obfuscation. That is why it is very pleasing to read Acoss’s new report – Taxing income less and consumption more: The case against – which factchecks some myths about Australia’s tax system.
Acoss provides three points that need to be the basis of any discussion of tax.
Australia is a low-taxing nation
If you can’t admit Australia is a low-taxing nation, then you should not get entry into any roundtable discussion on the topic. As Acoss notes, Australia is the ninth-lowest taxing nation across all the advanced economies in the world. We raise less tax than every nation in the G7 except for the US. We raise less tax than South Korea, Canada, Japan, or the UK.
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In 2022 (the latest OECD-wide figures) the average level of tax across the OECD was 34% of GDP, while in Australia it was just 29.4% of GDP.
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That’s the equivalent of an extra $128bn.
And sure, you might say, “that’s how it is, we can’t change that”.
But we change things all the time in our tax system. Paul Keating introduced capital gains tax, John Howard introduced a 50% capital gains tax discount and the GST. We used to have inheritance taxes, and then Joh Bjelke-Petersen got rid of them in 1977:
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We also change our spending – we haven’t always had Medicare or the NDIS. Nothing needs to only be the way it is or was.
In 1970, total government tax revenue was 20.5% of GDP; within 15 years it was 27.5% of GDP – that’s a bigger shift than to go from where we are now to the OECD average.
Nothing is fixed.
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Australia is not overly reliant on income tax
The myth that we are a big income-taxing nation refuses to die.
Independent MP Allegra Spender, for example, likes to say in her social media videos and tax “green paper” that “we need to lower the tax burden on working people through lowering income taxes” because we need to rebalance “tax revenue from income taxes on labour towards other sources of tax” to ensure “sustainability”.
Except, as Acoss details, we are the seventh-lowest taxer of personal income in the OECD, and the 11th lowest when you include corporate income:
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As the Acoss report notes, Australia’s “share of personal income and social security taxes is 40%, below the OECD average of 50%”:
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Australia is less dependent on personal income taxes than every country in the G7 and yet, apparently, we need to reduce our dependency even more.
Even compared with our own history we’re not all that dependent on private income tax:
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Increasing the GST will hurt low-middle income earners
Often talk about needing to reduce our dependency on income tax is followed by a call to increase the GST. Conservative economists like to argue a GST is the most efficient tax.
Caring more about tax efficiency rather than equity is rather revealing but, even still, as Acoss notes, the GST is not actually much more efficient than income tax.
They note that previous Treasury research found increasing the GST to 15% and reducing income tax to compensate “would deliver negligible GDP gains”. The difference in efficiency of income tax and GST is so small that it would barely register in the overall economy.
So, the only reason you would do it is if it was fairer. But, as Acoss finds, it is decidedly not so.
Around the bottom 60% of households would be worse off from an increase in the GST to 15% combined with a 5% income tax cut.
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The government could instead increase low-income benefits but, as Acoss argues, these are notoriously temporary.
They note, for example, that the GST support package included “$3 per week per child family payments … together with an increase of up to $7 per week per family for sole parent families”. That was great until “seven years later, income support for sole parents with school age children was cut by $25 per week”.
So where does this leave us?
The problem is not dependency on income taxes but that we have overly generous income tax breaks for those who do not need them other than for reasons that have little economic basis.
As Acoss argues, “tax concessions for superannuation are excessively generous for people who don’t need support to save for retirement” and similarly “capital gains tax and negative gearing concessions encourage speculation in land, undermine housing affordability and divert investment from more productive purposes”.
We don’t need to increase the GST but we could broaden it to include things like private health insurance and private school fees which would actually be progressive. Some in the private school sector are already getting antsy about this (as they should).
And here’s the thing – we don’t need to only fund things with more GST – we could tax wealth and better tax gas companies and all the proceeds could go into the GST bucket that the states get.
There are a lot of ways to improve the tax system but, if you can’t admit the three points above, you really should admit you don’t belong in the conversation.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
