Flat White

We are a low taxing country?

2 December 2016

12:49 PM

2 December 2016

12:49 PM

oecdI’m sure you were all up late on Wednesday night eagerly awaiting the publication of the latest OECD Revenue Statistics. But for those who missed it, here’s the key point: Australia is supposedly a low taxing country. Yes, I know, you’ve heard this one before from every left-leaning organisation, media outlet and politician in existence. But stick with me…

The OECD report says tax as a share of the Australian economy was sixth lowest in the OECD. And our tax rate is well below the (unweighted) average. This is shown in the picture above.

So case closed? No… case incorrect.

Unfortunately for every single big-government enthusiast, the IMF has a completely different take. The IMF’s Government Finance Statistics has Australia’s tax take ranked 22nd in the OECD, and our tax burden is noticeably above the unweighted average. But it gets much worse if we weight by country size (recognising that the US is much larger than Iceland). On this measure, Australia is a considerable 4.8 per cent above the average. We are a high taxing country! This is shown in the picture below.


imf

What’s going on? The reasons are complex, but it is mainly because the OECD includes more things as taxes — particularly social security contributions that Australia doesn’t have. This boosts the tax levels in other countries, and also increases the average. I discuss this odd situation in a report released earlier this year.

Now that we know that Australia is both a low taxing and a high taxing country at the same time, perhaps we can find support for other political positions — no matter how ludicrous they seem.

Suspend disbelief and picture the Coalition (the party of lower taxes) presiding over large tax increases, particularly due to bracket creep. Or just imagine them passionately opposing, then vehemently supporting, tax increases for people’s carefully-saved super.

On the other side of the house, the ALP thunder about tax discouraging backpackers from coming to Australia, while claiming that personal tax rates (or company tax rates) at much higher levels have no disincentive effects. And in some horrible fantasy universe, they could even say we need to improve the budget balance faster while proposing policies that worsen the position in the next four years.

Wait a minute…I think everything is making sense now.

Michael Potter is a Research Fellow at the Centre for Independent Studies


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