Australia: a low-tax country

 The federal budget will be handed down in a fortnight's time and the Treasurer Wayne Swan has taken to the airwaves to warn us it will be lean and "unpopular". The recent natural disasters have cut $9 billion from economic output and tax collections are down this financial year by $4.5 billion. But, the Treasurer assures us, the Government is sticking with its promise to return the budget to surplus by 2012-13. Predictably, the Government has decided a tougher approach to long-term welfare recipients, in particular those on the Disability Support Pension, is what's needed to help it achieve its surplus goal.

But instead of targeting the sick and disadvantaged, what if we were to take a 'tougher approach' to the level of taxation in Australia?

The influential American think tank the Center on Budget and Policy Priorities recently pointed out that the US was a very low-tax country compared with other OECD countries and published the following graph to back up its case.

Look where Australia sits.

One of the reasons Australia is such a low-tax country is that the Howard government gave away much of the then budget surplus in tax cuts for the wealthy. In the years 2003-11 those tax cuts gave someone on average weekly earnings $26 per week while someone earning five times that received a tax cut of $367 a week. Tax cuts at the top end would have been even higher if the Rudd government hadn't repealed Howard's plan to give people earning above $180,000 some 'tax relief'.

In just the period leading up to the 2007 election the Howard government promised tax cuts of $70 billion over four years. In the meantime, tax assistance through generous superannuation concessions which favour the wealthy was increased from $10 billion to over $30 billion.

Now that the Government is desperately looking for spending cuts to return the budget to surplus it should consider reversing some of the generous concessions Howard made for high-income earners as well as last year's decision to cut the corporate tax rate. Swan might also like to remember that in advocating a Keynesian approach to tackling the global financial crisis (by which he meant holding back total spending by cutting Government outlays) that Keynes also advocated increased tax collections.

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