Australia's Missed Opportunity for Tax Reform

Strategic Insights -

Tax reform discussions in Australia have focused on flatter tax rates, attracting high-income earners, and reducing incentives for tax evasion, but this approach overlooks the root cause of taxation - government spending. Australia's high government spending has increased from 30% of GDP in the 1990s to 35%, and it's stuck there. The country has missed an opportunity to introduce policies that reduce tax-hungry levels of expenditure during buoyant economic conditions.

Key Takeaways:

  • Australia's high government spending has risen from 30% of GDP in the 1990s to 35%, with two-thirds of Commonwealth spending allocated to social security, health, and public service.
  • The country has missed an opportunity to reduce tax-hungry levels of expenditure during the Asian-fired resource boom and the benefits of micro-economic reforms.
  • Australia's real per capita growth of 2% is poor compared to the international average, and overseas borrowings are running at 6% of GDP.
  • Targeting areas such as ballooning disability payments (moving from 13% to 20% of the population over 20 years) and unemployment payments could return government share of GDP to 1990 levels, allowing for 3% per capita annual growth.
  • A reorientation away from taxation and towards lowering expenditure is crucial to achieve these benefits, with the finance minister playing a key role as the gatekeeper.
  • Australia's current finance minister is not equipped to tackle government spending head-on, and the country has rarely been well-served in this respect.

Statistics:

  • Australia's government spending has increased from 30% of GDP in the 1990s to 35%.
  • Two-thirds of Commonwealth spending is allocated to social security, health, and public service.
  • Australia's real per capita growth is 2%, while overseas borrowings are running at 6% of GDP.
  • Disability payments have moved from 13% to 20% of the population over 20 years.
  • Australia's current finance minister is not equipped to tackle government spending head-on.

Sources:

  • "The high-level budget debate has predominantly concentrated on tax." - THE
  • "Australia has rarely been well served in this respect." - THE
  • "The current budget, as with most under Howard/Costello, has avoided the worst excesses." - THE
  • "The Howard/Costello period has avoided fiscal mismanagement." - THE
  • "Australia's economic environment is superb, with real growth of 2% per capita." - THE