New research from The Australia Institute’s Nordic Policy Centre shows there is no evidence for claims that higher levels of taxation have a negative impact on economic growth.

As Australia’s economy begins to emerge from the COVID-19 recession, a comparative study of 188 countries has shown that higher levels of taxation, such as those found in Nordic nations, are correlated with stronger economies, higher average incomes and improved social outcomes.

“As Australia begins to chart its course out of the COVID-19 recession we need to have a serious, fact-based conversation about taxation and how we can best invest in our nation for the long-term. Rigid ideological positions and baseless talking points about the supposed benefits of tax cuts have hobbled the economic debate in Australia for far too long,” says Matt Grudnoff, senior economist at The Australia Institute.

“When comparing countries across the globe, the trend is consistent: those with higher taxation rates also reported the highest levels of economic wellbeing, average income, life expectancy, education, lower rates of inequality and, importantly, happiness.

“Persistent claims that taxation is a ‘burden on the economy’ and a ‘drag on growth’ are simply not backed up by the evidence. Australia Institute research shows countries with higher taxes are more likely to be associated with higher levels of wellbeing.

“Tax is an investment in society. While there is no budget constraint to the Federal Government during the pandemic, in the medium and long term countries with a strong tax base are more likely to invest more in high quality education, health, public transport, childcare and quality infrastructure, investments that deliver considerable benefits to the economy, the community and help to reduce inequality. The reality is that Australia can’t have a Scandinavian health system with a US tax system.

“If we want to match Australia’s strong health response to the COVID-19 pandemic with an equally strong economic response, we need to invest in our country, not endlessly hand out tax cuts.

“The data is in – there are almost no countries in the world that have high levels of wellbeing and low taxes. Australia should learn from the international examples, such as those in Nordic nations, which show that high taxation can indeed benefit a society and strengthen an economy at the same time.”

The full report: ‘Tax & Wellbeing’ by Matt Grudnoff, Senior Economist at The Australia Institute, is available here