Phil Ruthven Columnist

Phil is founder and chairman of IBISWorld, an international corporation providing online business information, forecasting and strategic services. He is considered one of the nation's most respected strategist and futurist on business, social and economic matters.

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The case for raising taxes – just a little

Published 14 February 2013 00:21, Updated 14 February 2013 00:50

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Australia has become one of the lowest-taxed nations in the OECD, beaten only by the United States, which has been in denial of its overspending (deficits) for 90 per cent of the past 40 years, with just four years of surplus budgets under Clinton’s second term.

So any US claim to be a low-taxed and virtuous economy is, of course, nonsense. Its current deficit spending is more than 7 per cent of gross domestic product, a level exceeding Australia’s worst (greater than 5 per cent of GDP, twice in the ALP Hawke/Keating era).

Australia, by contrast, has overspent for 25 of the past 40 years (63 per cent of the years), as the first chart of government budget balances shows. It’s still a lot of years but less than the US.

Some 18 of the 25 deficit years were ALP-governed years and seven Coalition-governed years. The Coalition deficits were all under the Fraser/Howard period to 1983.

Over the past quarter century, all 14 deficits have been under ALP governments (Hawke/Keating and Rudd/Gillard/Swan) and none under the 11-year Coalition period to 2007 (the Howard/Costello era).

The average tax level in the OECD was 36-37 per cent of GDP in 2010, compared with Australia’s 25.9 per cent that year. Sweden and Denmark topped the ladder at nearly 50 per cent of GDP. So any suggestion that our nation is highly taxed in the modern era is humbug or ideological zealotry.

In the post-industrial age since 1965, our level of taxation has risen from 20 per cent of GDP to 27.5 per cent in 2012. However, our standard of living, in real terms, has risen 168 per cent; net of taxes, it has risen 144 per cent. So, as a caring society, without heading for a “nanny state”, we have a lot of room to move on some much needed help to the disabled and other disadvantaged members of society.

Looking at Australia’s tax levels over the past 50-plus years, as the second chart does, proves interesting. The nation was undertaxed in the 1990-1996 period in the latter years of the 13-year ALP rule and it has been even more severely undertaxed over the past five years, as the chart clearly shows.

Although few would doubt that the European Union has overspent rather than undertaxed, on the way to becoming “nanny states”, Australia has been kidding itself by undertaxing its citizens by developed world standards.

Yet neither of Australia’s big parties appears to have the courage or honesty to tell the above story. Of course, promoting or justifying higher taxes in an election year is anathema to any political party.

The hope is that both promise to bring budgets back into balance soon and that neither makes a promise to do so by slashing and burning. And one can only hope that neither party promises not to raise taxes.

The tax take is likely to rise a little with corporate profits rising and full employment returning in the next few years anyway. But that may not be enough. Raising the GST a little (say to 12.5 per cent), removing some of the exemptions and eliminating payroll taxes and some stamp duties would go a long way to making a more efficient economy and a more caring society.

Phil Ruthven is the chairman of leading Australian research group IBISWorld

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