The Intergenerational Report shows we need to talk about revenue
Australia not only is a low taxing nation, it now taxes less compared to the OECD than in the past – that will need to change if we are to provide the services Australians want.
The Intergenerational Report shows that Australia has been a low-tax country for at least the last 40 years and will continue to be a low-tax country. In fact, at the moment Australia is raising less tax as a share of GDP compared to that raised by the OECD average than we have in the past. The OECD average tax rate is well above where it has been for 40 years, whereas Australia raises less now than we did for most of the late 1990s and 2000s.
One of the hidden secrets of the Intergenerational Report is that it assumes that there will be a tax cut each and every one of the 30 years after 2033. This is because the IGR caps tax revenue as a share of the economy at 24.4 per cent of GDP from the end of the medium-term projection period (2033-34). This is despite the IGR predicting that even accounting for inflation and population growth, Australians will on average have incomes 50% higher in 40 years’ time.
Despite those higher real incomes, our tax to GDP ratio is assumed to stay the same.
This is unsustainable and is an assumption purely done because it assumes increasing the tax share over that level “would not be realistic”. But this is purely a policy choice, not an economic law.
Keeping Australia as a low-taxing nation while our population ages means that despite being richer spending on aged care will be unsustainable, spending on the age pension will be unsustainable, and spending on health will be unsustainable.
This is actually untrue. Australia can afford to spend on services that Australians demand and provide support to those who need it. But we need to have an honest talk about how we raise revenue. Locking in such arbitrary taxation levels only serves to make Australians feel poor so that they won’t demand quality government services
Australia is one of the richest countries in the world at the richest point in history. We can provide a great society that is fair and sustainable but we need to discard absurd suggestions that there is a limit on how much we can raise in tax and also the wrong belief that we are a high-taxing nation.
The Australia Institute’s 2023 Revenue Summit to be held in October will debate these issues and provide a much-needed reality check.
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