Jim Chalmers is stirring the pot in the economic policy scene with his discussions about economic reforms. But here’s the kicker: many loudest voices seem to have their own interests at heart. Add to that the usual fog of complex dialogue, and it gets a bit frustrating. So, spotting the neat report from Acoss, titled Taxing income less and consumption more: The case against, is a breath of fresh air as it clears away some common misconceptions about Australia’s tax structure.
Acoss highlights three key insights that everyone involved in tax reform needs to take seriously.
Spotting Australia as a Low-Tax Nation
First off, let’s be real—if you can’t acknowledge that Australia operates as a low-tax nation, maybe you should sit out of this roundtable talk. According to Acoss, Australia ranks as the ninth-lowest taxing nation among advanced economies! We out-raise all G7 countries in taxes, except for the US, and even countries like South Korea, Canada, Japan, and the UK pull in more tax revenue than we do.
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Looking at 2022 numbers from the OECD, the average tax collection was 34% of GDP, but in Australia? Just 29.4%—a whopping difference translating to around an extra $128 billion!
Some might argue, “That’s just how it is; we can’t change it.” But guess what? We are always changing our tax system. Remember when Paul Keating brought in the capital gains tax? Or when John Howard sliced it with a 50% discount and introduced GST? Inheritance taxes disappeared thanks to Joh Bjelke-Petersen in ‘77. And it’s not like we’ve blindly accepted things as they are; we adapt.
Back in 1970, government tax revenue was only 20.5% of GDP and hit 27.5% in just 15 years. That’s a bigger leap than what we’d need to get up to the OECD average today.
Nothing is set in stone.
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Aussie Tax Dependence: Not What You Think
The recurring claim that Australia relies heavily on income taxes is, frankly, just wrong. You’ve got folks like independent MP Allegra Spender saying we ought to drop income taxes to lessen the burden on working people and invite more efficiency into our tax system.
But hold up—Acoss points out that we land as the seventh-lowest when it comes to personal income taxes in the OECD and eleventh when corporate taxes come into play.
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As Acoss notes, we only pull about 40% of our tax revenue from personal income and social security taxes—way below the OECD average of 50%!
Tests internationally show that Australia isn’t that reliant on personal income taxes compared to G7 countries, yet some still claim we need to cut down on it even more.
Raising GST: A Wrong Turn for Lower-Middle Earners
Now, right when people start talking about reducing reliance on income taxes, up pops the idea to hike the GST. Some economists point to GST as a tax that’s all about efficiency, but prioritizing efficiency over fairness raises some eyebrows. Acoss herself notes that the GST isn’t much better than income tax in terms of overall efficiency.
Past Treasury studies suggest that a jump of the GST to 15% while cutting back income tax would provide us with almost no benefit in GDP. Simply put, there isn’t a significant edge to hiking GST under those conditions—it just raises a sticky Wikipedia entry worst-case scenario.
Staying centered on fairness seconded by Acoss indicates bad news—most households in the bottom 60% would take a hit from a GST bump to 15% without enough income tax cuts to ride it out.
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The government could boost support for low-income families instead, yet Acoss calls that approach heavily temporary. Take their example: a GST support package trailed off from a $3 kid payment per week, skyrocketing to disappearing family supports for sole parents down the line.
So, what do we conclude from all this?
The real issue isn’t needing to cut down on income taxes but that current breaks are flowing way too generously to folks who hardly need a boost. Acoss makes this clear: the tax concessions for superannuation are slammed as too lavish for higher-income folk who don’t need the extra prod to save for their futures, and capital gains loopholes, free rein inclines, dim housing affordability, and drain away from productive investments too.
No need to crank up the GST when we could think about expanding it to things like private health insurance and school fees, where it would spur fairness. Some in the private education ranks are already feeling sketchy about it—and rightly so.
What’s more? There’s a broad array of methods to fix and update our tax system. But at the root of it all, if you can’t accept these crucial insights, perhaps it’s time for you to bow out of this conversation.
• Greg Jericho pens a column for The Guardian and serves as a policy chief at the Centre for Future Work.
