While it is true that income tax in Australia is relatively high when compared with some OECD countries, it is also true that many other countries with low income tax burdens have very high indirect tax burdens. (For example, taxes such as the GST.) The consequences for equity here, are notable, with regimes of high indirect tax leaving the poor and average income earners worse off than would be the case under a more progressive regime of income-based and capital-based taxation.
That said, it is well worth comparing Australia with western Europe and the Scandinavian countries including Norway, Finland and Sweden. Those favouring a regressive “flat tax”, for instance, never fail to compare Australia with Eastern European economies which have adopted “bare bones” taxation regimes in the wake of the collapse of the Eastern Bloc.
Yet when it comes to assessing our overall tax system, we are informed by the Business Council of Australia that we ought adopt a “weighted” system for the sake of a distorted outcome favouring tax cuts, and that western Europe and Scandinavia are “irrelevant” given that they enjoy a lower combined GDP than the United States. When considered on a country by country basis, however, with western Europe and Scandinavia included, Australia is the eighth lowest taxing nation in the OECD.
In order to match Finland, for instance, which has rated as the most competitive economy in the world, Australia would need to increase taxation as a proportion of GDP by a massive 20 per cent. In other words Australia would have to raise taxation (and thus also vital expenditure on social and economic infrastructure) by over $160 billion a year. (Australian GDP is over $800 billion.)
Competitiveness is not simply a “race to the bottom” determined by who levies the lowest income and corporate rates. It depends on the quality of institutions and infrastructure, including education, health care, transport and communications as well as the level of innovation and the degree to which such innovation is actively supported by government.
The facts are simple. Australia is lagging in its provision of social and economic infrastructure. Hundreds die every year as a consequence of hospital waiting lists. We have a higher education system that is weighted more and more in favour of “full fees” - with the consequence being that students from lower income backgrounds are deterred from study. Universities are driven into a culture of dependence upon corporate sponsorship in the wake of inadequate funding for research.
What is more, we have a secondary education system that is moving more and more towards defacto privatisation where accessibility and “equality of opportunity” for poorer households will become a thing of the past.
Finally, as we are constantly reminded, we have an ageing population - and no idea how we are going to afford the continuance of programs such as the Pharmaceutical Benefits Scheme (PBS), nor how we are going to provide quality, dignified aged care in the future (let alone in the present).
And yet, among this social catastrophe, the call is always for further corporate and PAYE income tax cuts. This contradiction between the demand for social services and the demand for ever lower levels of taxation, has been referred to as “the fiscal crisis of the state”.
At present, the solution to these quandaries is seen as being the application of Public Private Partnerships and market principles, and further drift towards the principle of “user pays” in all spheres of life. That PPPs are an inefficient means of providing infrastructure is an established fact.
The Scoresby Freeway Public Private Partnership in Victoria, for instance, worth approximately $2 billion, would cost $7 billion to buy out as a consequence of foregone profits. Ultimately, therefore, the project is likely to cost motorists over three times as much through regressive flat tolls than it would if levied upfront through progressive taxation. Furthermore, questions of efficiency aside, the very idea of allowing “the market to sort us out” when it comes to health care, aged care and education is fundamentally unjust and inhumane.
In order to adhere to the principles of “the fair go” in this country, while funding the infrastructure development necessary for enhanced economic competitiveness, we need tax reform aimed at improving the progressivity of the overall tax mix and increasing government expenditure as a proportion of GDP. Good places to begin would be as follows:
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