“Progressive” think tank Per Capita recently released the results of their annual tax survey. It turns out that 51.5 per cent of Australians think they pay about the right amount of tax. 39.6 per cent reckon they pay too much and a mere 1.9 per cent think they pay too little tax. It turns out that both young and old people think they pay about the right amount of tax. So much for the age-wars – it seems that young and old can agree on something. People of lower levels of income also tended to think they paid the right amount of tax.
Now this survey has been widely reported – especially in the Fairfax press. We’ve been reminded of Oliver Wendell Holmes’ Jr. statement that he liked paying tax as “the price we pay for a civilized society”. He is quite correct – tax is the price we pay for a civilised society. Yet nobody ever stops to ask what sort of civilised society Holmes had in mind. How much tax did he pay? In 1904, when he made that statement, the United States did not have an income tax. The income tax was introduced in 1913 after a constitutional amendment.
There are two issues that this sort of argument overlooks. Who actually pays the tax and what sort of civilisation are we buying?
It is not surprising that over half of Australians think they are paying the right amount of tax. The fact is, that according to Australian Tax Office data, less than half of all Australians actually pay income tax. In 2014-15 there were some 9.95 million taxpayers. With only some 43 per cent of the population actually paying tax it is surprising that as many as 51.5 per cent think they are the right amount of tax.
Then there is the distribution of tax. Australia has a highly progressive graduated income tax. The top one per cent of income earners earn 9.45 per cent of all taxable income and pay 16.8 per cent of all net income tax. By contrast, the bottom 25 per cent of all income earners earn 9.95 per cent of taxable income but only pay 2.83 per cent of net income tax. Talk about unfair – the top one per cent of income earners make up less than half of one per cent of the total population and pay the lion’s share of the tax that finances the commonwealth government. The top five per cent of income earners (a mere 2.16 per cent of the population) pay 33.1 per cent of net income tax.
So the idea that 39.6 per cent think they pay too much tax is well in excess of the people who pay the lion’s share of net income tax.
We also hear much about the fact that tax cuts in the naughties tended to favour high-income earners. That is true – that is obvious. Only people who pay tax can benefit, in the first instance, from a tax cut. People who don’t pay tax will get little obvious and immediate benefit. It’s not rocket science.
Those people who consume government services but pay little in tax are living off charity. The single largest budget item in the federal budget is welfare – government sponsored charity. Now there may be good reason why some people need welfare. Yet is a large and growing welfare dependent population the kind of civilisation Oliver Wendell Holmes had in mind?
Sinclair Davidson is a professor of economics at RMIT University, a senior research fellow at the Institute of Public Affairs and an academic fellow at the Australian Taxpayers’ Alliance.
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