Time to face up to our ‘doublethink’ on tax policy

Mr Turnbull deposed Mr Abbott as PM in 2015.

Mr Turnbull deposed Mr Abbott as PM in 2015. Photo: AAP

The toxic political climate of the past decade has left Australians in a state of ‘doublethink’ about the taxes we pay and the services we demand.

George Orwell used that term to mean “holding two contradictory beliefs in one’s mind simultaneously” – in this case, ‘taxes are too high!’ and ‘there should be no more cuts to services!’

A new report from The Australia Institute shows clearly that it’s the first of those beliefs that is false.

The think tank has used data from the Organisation for Economic Co-operation and Development (OECD) to show Australia is a low-taxing country when compared to other developed nations.

Total taxes collected at federal, state and local government levels are worth around 28.2 per cent of GDP, compared with an OECD average of 34.4 per cent.

To put that in perspective, if Australia matched that average rate there would be an additional $110 billion per year collected – slightly more than the federal government is spending on health and education combined.

Even if Australia’s compulsory super system were counted as a tax – and neither the OECD nor The Australia Institute believe it should be – we’d still be at a tax-to-GDP ratio of 31.4 per cent.

Along with the report, The Australia Institute has issued an open letter to our political leaders calling on them to face up to our low-tax status and to “reject a tax cuts race to the bottom, and instead focus on tackling tax avoidance, closing tax loopholes, and unfair tax concessions in order to build a stronger revenue base for the nation”.

That letter is jointly signed by a list of luminaries including former Labor minister Greg Combet, economist John Quiggin, feminist and sociologist Eva Cox, ACTU secretary Sally McManus, lawyer and commentator Josh Bornstein and prize-winning writer Anna Funder.

It’s an import message, because the above-mentioned toxic decade has sent the voting public’s expectations on tax and expenditure in different directions.

Australia has an ageing population, and thanks to the wonders of science and technology we have the means to comfort and heal more of the population than ever before, or to stop them getting ill in the first place.

Both of those structural changes impose higher costs on federal and state budgets, and neither can be stopped.

But during the years that Tony Abbott led the Coalition, the nation was taught to obsess over ‘debt and deficit’ as well as to expect taxes to go down – meaning the only way to fix the federal budget was to cut services.

Thus in 2014 we were introduced to the magic number of 23.9 per cent – the maximum portion of GDP that should be collected by the federal government (which collects about 80 per cent of all taxes), according to the Abbott government’s commission of audit.

That was always crazy logic. The red columns on the chart below give a fair indication of where expenditure will go as Australia’s ageing demographic profile matures – costs will rise, and the logical thing is to allow public spending to rise a bit to cover them.

That’s not an argument for a Denmark-style fiscal policy, in which 46 per cent of GDP is collected as tax.

But allowing total tax collection to rise from 28.2 per cent to, say, 33 per cent, would not ‘crowd out’ private investment and consumption as the right of politics always claims.

What it would do is address some of the problems already being faced due to the ageing population.

It would not only provide the funds for reasonable pension payments, but would remove some of the temptation for successive governments to hack away at other aspects of Australia’s social safety net – unemployment benefits, the NDIS, veterans benefits, family payments and so on.

It would also provide more scope to cover essential public investments in preventative health; the parts of the NDIS that increase workforce participation and actually save taxpayers money; and productivity boosting education and infrastructure spending.

What The Australia Institute is calling for is far from radical.

Australia can be a prosperous nation, with good levels of health, education, infrastructure, defence, a strong rule of law and sturdy democratic institutions – but only if we pay for it.

What The Australia Institute report highlights is that we can do all that, and still be below the average taxation levels seen across the developed world – if, that is, we learn to ignore the doublethink generated by political opportunists in Canberra.

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