Is a $1,228 tax hike by 2020 fair?

Kelly Emmerton

Wednesday 08 June 2016

With taxes set to increase by 12.7%, or $1,228 per person over the next five years, the Centre of Independent Studies has recently released a paper that suggests the tax hike will be an unfair burden for regular Aussies.

Is a $1,228 tax hike by 2020 fair?

This forecast tax burden is $29.6 billion above the historical average and is near to what Australia experienced during the mining boom - something Michael Potter, the author of the report, argued was “inappropriate, given how much weaker investment, wages and the overall economy are today compared to the boom.”

Rather than being a result of the current economic climate, the paper made an argument that the current budget deficit, which the tax hike would offset, is due “almost entirely” to government policy.

“Removing the effect of the economy,” Potter wrote, “we would most likely see that [government] revenue and spending are both above historical averages.”

“In the periods where the state of the budget and the economy were similar to today, tax revenue was at or below its current levels, and spending significantly below its current levels,” he added.

The paper ultimately concluded that the tax increases wouldn’t reflect the situation of everyday Aussies, and suggested instead that, “Australia has a problem with government spending.”

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Although Australian taxes are below the average for Organisation for Economic Co-operation and Development (OECD) countries, the paper suggests this isn’t a true reflection of reality and states in no uncertain terms that, “Australia is not a low taxing country. IMF and World Bank data shows our tax burden is above the developed world average.”

The reason Australia is looked at as a low tax country, Potter argued, is that the OECD does not include social security contributions - like Australia’s superannuation. Other datasets, like those from the International Monetary Fund and the World Bank, do include these contributions and rank Australian taxes as much higher.

Data from the World Bank, for example, shows that Australia’s tax to GDP ratio was 21.3% in 2012 - well above the weighted average of 14% throughout the developed world.

Potter also discredited the idea that a higher tax burden was justified by tax avoidance in Australia, saying that, “Higher taxes won't affect the most successful tax avoiders, will impose the greatest cost on those who don’t avoid tax, and will just encourage more avoidance.”

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