Revenue the key to budget problems

The Australia Institute have today published Taxing times: The impact of the GFC on tax revenue in Australia which models the sharp decline in Australian budget revenues against a scenario where pre-GFC tax ratios were maintained.

This research shows that the main factor leading to the post-GFC deficits and the accumulation of government debt has been the fall in tax revenue.

“The numbers are clear; when the government cuts its income, it finds it near impossible to run at a surplus,” Executive Director of The Australia Institute, Ben Oquist said.

“Despite a strong rhetorical focus about finding expenditure ‘savings’, the government’s own forecasts for a credible path back to surplus rely on a return to pre-GFC tax-to-GDP ratios,” Oquist said.

The Australia Institute modeled where budget bottom lines would have landed from 2001-2016 if tax revenue had been maintained at Howard-era rate of 23.9%.

Figure 3 – Budget outcome if tax revenue fixed to 23.9% of GDP 2001-2016

  Budget outcome if tax revenue fixed to 23.9 per cent of GDP 2001-2016

Source: Commonwealth of Australia (2016) Budget paper no1, Statement 10 and calculations

Red – Labor in Government, Blue – LNP in Government

“Issues that affect government expenditure tend to gain greater attention.  Social programs or public works are tangible outlays and have been more hotly debated. Meanwhile, tax cuts have often been implemented with far less political debate or controversy,” Senior economist at The Australia Institute, Matt Grudnoff said.

“The debate over company tax cuts, negative gearing and even a ‘Buffet rule’ in the last election illustrates that there may now be an opportunity for a greater focus on the real origin of budget deficits,” Grudnoff said.

Australia has a low tax to GDP ratio by international standards and our current tax take is at a lower level than when John Howard was Prime Minister.  A focus on modest measure to increase revenue would be good policy for 2017.

Media contact – Ebony Bennett 0431 625 910

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