Despite the surge in tax receipts under the current Turnbull government, which is on track to deliver one of the Top 10 taxing budgets in Australia’s history, Australia remains a low taxing country.
According to OECD data, Australia is one of the lowest taxing countries in the industrialised world with tax collection around 7 per cent below the OECD average. For context, 7 per cent of GDP is about $130 billion per annum in extra tax we would have to pay if we were to get the average and is about the same again from the top taxing countries. There is no economic or indeed social need to have lower tax rates.
One doesn’t have to be John Maynard Keynes, the parent of modern economics, to see that cutting taxes from an already low level yet still balancing a budget means that government services must also be reduced. There is no other way of balancing a budget if tax revenue is cut.
This is, effectively, what the advocates of the company and income tax cuts are suggesting – lower spending on education, health, roads and the like, to find the money to give away in company and income tax cuts.
At one level, most people probably want to pay less tax, but are nonetheless willing to pay some tax if they can see the tax dollars being put to good use. Specific taxes such as the guns buy back levy, the tax hike on the top 3 per cent of income earners which was used to lower the budget deficit and the first instalment of the increase in the Medicare levy, to help fund the national disability insurance scheme, were uncontroversial. There was almost no objection to any those taxes because they were being put towards a good purpose.
On the other hand, one only has to recall the horror budget of 2014 where Treasurer Joe Hockey proposed extraordinary cuts to services as he endeavoured to balance the budget. This cost Joe and Prime Minister Tony Abbott their jobs as the electorate shied away from policies that reduce essential services.
The interesting thing is that a lot of the tax talk over the next few months will be decided by you, the voter, as you mull over the idea of paying a little less tax but having services cut, or having tax changes implemented that drive up revenue, collected mainly from the wealthy, that allows the government to fund a decent level of service provision for education, health and the like.
The choice will be yours.