Aussies seem to want to pay more tax

Cross-posted from The Conversation:

The same deep forces that were behind the election result in Queensland are being played out in Canberra. The Australian people want, although most won’t admit it, higher taxes – either now or in the future. This is the inescapable conclusion from the rejection of the Newman government’s debt-reduction plan and the shenanigans in the Australian parliament that have prevented the Abbott government from implementing its pre-election pledge to pay down government debt.

A preference for higher taxes is perfectly rational and is being expressed across most developed countries. The evidence is clear. Consider what has happened over the last two decades in Queensland, Australia and most OECD countries (the 30 most economically advanced countries). Actually this has been going on for longer than two decades, but I’ll focus on this period as this is where the OECD’s published data set starts.

Government spending has risen, tax revenue has fallen and government debt has risen, all measured as a share of national production of goods and services (GDP). In Australia, spending across all levels of government has been 2% of GDP higher over the past decade than over the previous decade. The figure across all OECD countries is 3% on average. Government revenue has been about 2% of GDP lower over the past decade than it was over the previous decade – and 0.5% for the OECD.

Governments and households

This has meant rising government debt. Government liabilities have risen 11% (of GDP) in Australia over the past two decades and 30% across the OECD, which eventually implies either higher taxes or lower spending.

Some say this isn’t true – that governments are not like households that eventually have to repay their debts because governments can simply print money to repay their debts. This is a dangerously naive view for an economy like Australia that borrows heavily from the rest of the world, and it has been debunked in detail elsewhere. Suffice to say that Queensland lost its AAA credit rating several years ago because of its rising debt, which has cost the taxpayer dearly through rising interest payments.

The solution to rising debt is, eventually, lower spending, higher taxes and/or selling assets – provided the private sector is prepared to pay a price high enough to compensate for the loss of income from the assets (which they often are willing to do). Australians seem not to want either lower government spending on services like education (case in point: the rejection of higher education cuts) or health (case in point: rejection of cuts to Medicare rebates to doctors), or asset sales (e.g. the rejection of the Newman government’s key election policy). Indeed we seem to want governments to spend in new areas such as disability funding and spend more in existing areas like child care, which explains the edging up in government spending as a share of GDP.

We’ve seen the same overseas: the election of the new Greek government that has rejected further austerity despite its net debt of 125% of GDP (compared with the OECD average of 70%). And the failure of the US Senate to agree to measures to reduce its net debt, which stands at 85% of GDP.

Why we can afford it

The only option left is higher taxes, which brings me to my original point: this is not so crazy. Indeed it is rational.

Why? Because our living standards are rising. Our incomes and wealth are rising, giving us the means to buy more goods and services. The core source of this rising prosperity is productivity. If the average worker can produce more over time we can all be better off.

Labour productivity in Australia has grown at 1.3% per year on average over the past two decades, according to the same OECD data, which means that national output per worker is about 40% higher now than it was only two decades ago. Think, for example, of the productivity gains in communication through cloud computing. Sure, when translating the 40% figure to living standards we need to chop a few percent off to account for the drop in the number of workers relative to consumers (mouths to feed). But still it’s a substantial gain. The annual figure for the whole OECD is 1.2%, so the same applies across other advanced countries – the cloud knows no borders.

Which brings us to the punch line. If we’re all better off than we were 20 years ago, why not pay a bit more tax rather than give up government services on child care, disability services, health care and higher education?

This is what Australian taxpayers are saying in voting out the Newman government and, through their representatives in the Senate, in voting down the Abbott government’s budget cuts, modest as they are. And it’s what voters are saying in Europe and the US. That is, we don’t want cuts to government services, we’d rather pay higher taxes – either now or in the future when we eventually have to address the accumulation of government debt.

There’s evidence Australians feel they pay about the right amount of tax, but we won’t always openly admit to a willingness to pay more – certainly not to politicians. Why not? Partly because we always live in hope that someone else will pay: “raise someone else’s taxes or cut someone else’s services”.

Also we want to keep governments on their toes – make sure they are trying hard not to waste our taxes. And finally, even though we know we are better off than 20 years ago, it’s happening very slowly – we don’t feel it when we wake up in the morning.

The bottom line: we’re in for more government paralysis until eventually a government rings the bell on us and raises taxes.

Article by Ross Guest, Professor of Economics and National Senior Teaching Fellow at Griffith University

Comments

    • Yes – rightly or wrongly there is a perception that a lot of high earners are underpaying. People would certainly prefer underpayers paid their share than lose their services.

    • THIS.

      GST 10% (I am ok with this)
      Tax on fuel (I am ok with this)
      Tax on savings (not ok with this)
      Rates (I am not ok with their ROI)
      On Site Sewer System Management “fee” – not ok
      Fire Services Levy, nope
      Stamp duty, nope
      Motor vehicle taxes, nope

      I’m not with more tax at all

      As Kevster said, less loopholes, especially for billion dollar MEGACORPS, less deductions, super concessions, negative gearing

      Increasing taxes is just lazy

  1. “The same deep forces that were behind the election result in Queensland are being played out in Canberra. The Australian people want, although most won’t admit it, higher taxes – either now or in the future”

    Or perhaps they want higher deficits and higher interest rates instead?

    They wouldn’t know because the topic is never discussed or explained

    • Yes. My initial response was ‘is this for real’. I think it is.

      I suspect the author is saying if we want never ending services and welfare benefits from the public purse we are going to have to pay for them.

      Unfortunately, this responsibility generally falls on a minority of income earners who are targeted for greater contribution. Even Abbott hit so called ‘high’ income earners with a levy. The rest meanwhile squeal loudly and keep their hands out.

      • “this responsibility generally falls on a minority of income earners who are targeted for greater contribution.”

        Yeah, that’s because a minority are collecting the majority of the wealth and income under the guise of the free market! It’s a trend that simply is not sustainable, thus many of the economic and political imbalances and problems developing around the world.

        “The rest meanwhile squeal loudly and keep their hands out.”

        The time to worry is when the squealing stops and the pitch forks come out.

        “from the public purse we are going to have to pay for them.”

        Were you not cheering the Chinese government on to further stimulate its economy? I guess it’s ok to get rich off the behaviour of other governments, as long as you don’t have to pay for it in the form of future taxes.

      • Minority are rentiers.
        You know this.

        Most do NOT squeal loudly.

        If the majority weren’t being reamed already, they probably would b ok with some service reduction commensurate with tax reduction.

        What services do you mean?

        Health? Sorry I’ve paid hundreds of thousands of dollars in tax to this country and gotten fk all out of it, so now I get free maternity care, fair enough.

        What else? Piddling amount of Newstart for a few months? Whooopeee!

        Family Tax Benefit A? Wouldn’t need it if I wasn’t paying all these other bull$hit taxes and if the 1% pulled their weight. (Don’t give me trickle down B$ “they’re providing jobs” – they do not do this as a public service)

        What else?

        Close Fringe Benefits
        Super concessions
        Tighten pension
        Negative gearing
        Family trusts
        All the other b$ tricks wealthy taxpayers can use to avoid minimise tax
        Corporates like Google need to pay their tax here as appropriate

        Then you might have a case to make vis a vis the 99% “Squealing loudly”

    • I think it may be sarcasm.

      Hard to tell – The conversation is full of fluff like this – often composed by academics attached to some industry ‘partnership’.

      Seem to want to pay more tax?

      What type of tax?

      For what services?

      I doubt anyone wants a government to misallocate resources.

      Assuming that is not an issue (chuckle) the issue becomes who contributes to the resources being allocated and in what proportions.

      People clearly see the need for govt allocations but I think most people are not satisfied with the job done to date. They may be mistaken in their conclusion but that is another story.

    • Forever increasing taxes, services and living standards. Truly, we are the chosen people of a Socialist deity.

      But hang on a moment, don’t Australian’s spend the first 6 months of the year working for the government? Isn’t our near 50c in the dollar tax rate obscene as it is?

      Just ask Joe.

  2. Provided it were uniformly applied, I would much rather pay:

    a) an annual tax on net wealth (which would see me paying more); and

    b) a tax on economic rents,

    rather than seeing the economically inefficient sale of monopolies and the creation of tax farms to paper over budget shortfalls.

  3. It’s a bit glib — Think, for example, of the productivity gains in communication through cloud computing…. so the same applies across other advanced countries – the cloud knows no borders. It isn’t quite like that. Cloud is a means to cut tech capex.

  4. Its a heck of a thing when friendlyjordies can impart more information in a concise but, humorous manner, than most of the MSM and political apparatchiks.

    The Myth of The Dole Bludger

    https://www.youtube.com/watch?v=ddaSYKhXBdM

    Enjoy!!!!!

    Skippy… sometimes its confusing… mathematically challenged or ideologically [really class bias at the end of the day].

  5. as I have only quickly skimmed through the article, did the good professor talk about our insane cost of living (read: housing price), world beating tax concession and massive wealthfare payout to the rich (read: boomers)? if not, this article is worthless.

  6. Further evidence: Gillard’s mandatory tax (levy) for the QLD floods announced AFTER so many of us donated to that cause was a real stinger.

    • Agreed @Andy – and it set a bad precedent for the future floods guaranteed by global warming…..

      • Yes good point! It was entirely appopriate for the government to increase their (low) debt in response to that disaster.

        Anyway, I’ll need government assurance of no levy before “donating” that kind of money again should it happen – I figure I’ve already paid one forward.

    • First of all, those donations are not for paying for replacing the infrastructures lost. They pay for helping the victims.
      Second, the total amount donated no where nears paying for replacing the infrastructures destroyed or damaged.

      • Fair points, and glad my donation may have directly helped someone in need. I won’t budge on the additional tax being wrong though, because of people like negative gearing scum that reduced their tax to fk all and therefore weren’t required to contribute to the economy (again). Government borrowings at very low interest was entirely appropriate, so another economic fail for Rudd/Gillard (not that prior/successives are any better!)

  7. Haven’t read the article, but Leith you focus on the revenue side a lot. Can we maybe turn our attention to how the money is spent first before we take more of it? Enter public choice theory.

    Might also be worth educating people on the core competencies of govt, and the fact that its only because we have breached that boundary years ago that we can’t afford our expenditure.

    If the answer to our problems is always the coercive power of govt, which has its own interests, we are in trouble.

    • Expenditures pre GFC were geared on fraudulently concocted financial assets i.e. the stuff that was bailed out post GFC and is still in the process of amortization e.g. a massive transfer of wealth to the top quintile.

      Tax hikes to the rest of the population is like throwing a box of Saos to passengers in steering and saying distribute it wisely, whilst you can….

      Skippy… well maybe if you get the corporatist out of government, politicians [civil servants] can start hashing policy again and not just forwarding someone else agenda.

    • It’s always amazing to see people who think taxes and public services have been heading anywhere except down for the last few decades.

      Reminds us of how comprehensive the brainwashing has been.

  8. Lets see the reaction to a suggested increase in the GST to test this moronic theory. Most people very happy to increase the burden on the relatively few high income earners who shoulder the whole income tax burden anyway, but will scream at an extra few percent at the cash register. Spare me.

  9. michael francis

    I have no qualms paying more tax provided the Gina Rhineharts of the world pay theirs and property speculators are no longer a protected species from tax minimisation schemes.

  10. I think what the elites say as opposed to what real people do speaks volumes.

    The rise in bitcoin and the black market is a testament to poeple’s willingness to trade with each other using voluntary market based mechanisms and avoid the taxman. There is no way the NSA, the IRS and all the global authorities can keep up with the march of technology and people’s demand to be left alone and to keep their affairs private.

    • Yep, bitcoin is doing wonders for the founder of silkroad. It was the key evidence showing he personally pocketed silkroad profit over the years. Every single one of his transactions was recorded in the block chain.

  11. Compared to other countries, what we contribute towards our public health care system seems very low.

    I think majority of Aussies would accept an extra percentage point or more on our medicare levy if it meant maintaining a first world truly universal health care system.

    • TheJoneses

      I would be happy to pay a percentage point more.

      Problem is they come back asking for a percentage point more again and again.

      • Maybe we should set a floating rate. The Medicare levy should be set each year to a percentage to cover previous years expenses.

      • Maybe we should set a floating rate. The Medicare levy should be set each year to a percentage to cover previous years expenses.

        I’d be interested to see modelling for an income tax system where the thresholds are based on the previous years income percentiles.

        Eg:

        <Median income – no income tax
        Median to 2x Median income – 10%
        2x Median to 5x Median – 20%
        5x Median to 10x Median – 40%
        >10x Median – 60%

  12. “Our incomes and wealth are rising, giving us the means to buy more goods and services.”

    If incomes and wealth are rising, doesn’t it follow that more tax is paid. Therefore more spending can and has been afforded.

    Is this really a question of effective spending? Effective services.

    Or is our spending more to do with welfare. In particular middle income welfare.

    I refer back to my / your tax receipt. Have a look at where the money goes.

  13. I just want the boomers to pay “some”. Taxing superfunds in pension mode would be a great start.

  14. I would love to pay more taxes this year if it meant I was receiving higher interest on my term deposits.

  15. Democracide in action.
    The voters aren’t stupid, they look at the equation:
    Income = X – Y
    where;
    X = what I get from gubbermint
    Y = what I have to give to gubbermint (“tax”)
    If X > Y I vote for more gubbermint
    What? some have Y>X you say:
    “Bloody greedy bastards!”

  16. Do I detect yet another bureaucrat (academic this time), in “frenzied-spin” about cutbacks to public service etc? Giving Governments more of our hard earned income to squander on academics……..please