While successive governments and an endless stream of business lobbyists argue that an ageing population and excessively generous welfare benefits put pressure on the Commonwealth budget, a little graph buried in the budget papers highlights that the opposite is true. As the graph below shows, anyone concerned about the state of the Commonwealth Budget should be concerned with the low, and declining, level of tax collection in Australia …

The figure shows not only what the actual  budget deficit is, as a percentage of GDP, but also what it would be if the proportion of national income collected as tax (the so called tax-to-GDP-ratio) had remained stable at the 23.7% of GDP inherited by the incoming Rudd government. Put simply, if we hadn’t been so determined to cut income tax rates, corporate tax rates and tax on superannuation, we would currently be in surplus with surpluses as far as the eye can see.

While business groups have refined complaining about high taxes to a fine art, the NGOs that always want governments to spend more money have largely neglected the debate about the adequacy of the Australian tax system. The problem is that you can’t get world-class services if you buy your tax system in the bargain bin.

Peter Fray

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Peter Fray
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