So, the days of hand-over-fist increases in government revenue are drawing to a close, just as the nation contemplates big social spending projects such as the National Disability Insurance Scheme and the Gonski education review.
Inevitably there will be calls to delay the spending and cut programs. Just this week, after announcing a 10% rise in half yearly profits to $3.18 billion, the CEO of the ANZ bank called on the Federal Government to cut expenditure and taxes!
I for one think it’s time to raise taxes.
Contrary to popular opinion Australia is a low taxing nation. Total revenues collected by Governments hover around 25-30% of GDP, which places us in the lower half of industrialised nations, on a par with the US and substantially lower than the UK, France and Germany. Among industrialised nations we have the eleventh lowest tax burden on individuals. When you weigh up taxes and cash benefits the US, UK, France and Germany take a higher proportion of individual incomes in taxes than we do. We have the fourth lowest rate of consumption taxes, half the rate of most other nations. We’re at the higher end on corporate tax rates but still well below Japan and the US. (Stats from OECD tax database)
And contrary to popular opinion increasing taxes need not decrease economic growth. The economy grows as demand for goods and services increases and our capacity to meet demand grows with it. If doesn’t really matter who is doing the demanding, just that it is being done. If the Government takes more from me in tax that’s less money for me to spend at the boat shop but more money spent on disability services and education. So the loss in one area is offset by the gain in another.
Sure, we have to get the mix right. Taxes create artificial distortions that create positive and negative incentives. But that is an issue of carefully selecting which areas to tax, not whether we should have more taxes.
Would I prefer the money stay in my pocket? Of course. But even more than that I’d prefer to see the NDIS, Gonski, investment in renewable energy, a keeping of our promises on aid, and decent benefits to pensioners, the unemployed and the disadvantaged.