After yesterday’s interesting discussion, I thought I’d bring up another taxing (sic) chart today:
The first chart shows the composition of state and Federal government tax of GDP. Startingly, at Federation, tax was only 5% of total GDP (in unrelated historical fact updates, at that time, Australia was also the wealthiest nation on the planet, per capita)
Also, it shows that post-WW2, Federalism (a small federal government, with the separate State’s having independent taxation/revenue raising and administrative concerns) as a concept is largely dead and with the yearly rattling of sabers by State Premiers on dividing up the spoils of GST, a shadow of its former self.
And how do we compare internationally?
I always find these comparisons spurious and the notion that “we have one of the lowest tax rates in the OECD” ridiculous, used by both sides of political ideology to demand tax increases and decreases. Why? Look at the left hand end of the chart.
- the low-tax nation of Greece, in case you’re wondering, is having a revenue crisis. One major problem is tax evasion, due to (let’s be frank: culture)complexity, and profligate government spending.
- Japan has similar levels of tax to GDP, yet has a much more robust welfare system, although its public debt to GDP is well above 220%, and servicing that debt encompassing over a third of the annual budget.
- USA – where even a minute increase in tax leads to Tea Party conventions – has almost identical levels of tax to GDP as Greece and is arguably suffering similar problems – tax evasion through US corporate earnings, and a grossly out of control healthcare and welfare sector
- Switzerland – a well run and administered nation, with competition between cantons on taxes (i.e true Federalism) and a very effiecent healthcare sector and modest public (and private) debt.
- Ireland – another nation besotted by a private debt crisis caused by capital speculation, and a revenue shortfall that can only be filled by “generous” ECB plutocrats
Again just like the debate regarding public debt, what is more important than outright effiecency and nominal levels, is robustness againgst expected (e.g the eventual end of the China-India resources boom) and unexpected (e.g cyclical recessions in that boom) outcomes, and the composition/efficacy of the taxes raised and spent.