• Sat. Dec 10th, 2022

While Australia is a relatively low-taxing country by international standards, the composition of the tax take is heavily skewed to workers and corporations.

Dec 3, 2020

The GST share of tax revenue is almost half of the OECD average of 20.4 per cent for valued added tax (VAT), according to the OECD’s Consumption Tax Trends 2020.
For the past decade, the Ken Henry tax review, business, International Monetary Fund and OECD have urged Australia to shift its dependence from economically distorting personal income tax and 30 per cent corporate tax, towards consumption and land.
Australian National University Tax and Transfer Policy Institute director Robert Breunig said the tax system was stuck in the 1970s and hurting economic growth.
Breeding ground for tax avoidance
“Corporate tax discourages investment, innovation and economic growth,” Professor Breunig said.
“On the personal side, higher taxes not only may create a disincentive to work, but have created a huge industry of avoiding tax in Australia which is only good for lawyers and accountants.”
He said the 10 per cent GST captured less than half of overall consumption, compared with about 99 per cent in New Zealand.
“People have to consume and spend so we think it’s a tax that has lower economic costs than corporate tax and personal income tax.”
Professor Breunig said within personal and corporate income tax, Australia was becoming increasingly reliant on a small group of high income earners and about a dozen big corporations.
The Morrison government has legislated almost $300 billion of personal income tax cuts over a decade and the Turnbull government fell one Senate vote short of cutting the 30 per cent corporate rate for all companies to 25 per cent.
Low tax overall
Overall, Australia’s tax take of 28.7 per cent as a share of the economy is below the OECD average tax-to-GDP ratio of 33.9 per cent.
The federal government collects 81.2 per cent of total federal, state and local tax revenue ranking No. 1 for central governments among countries with a federal system and above the 53.4 per cent OECD average.
It confirms states raise a low share of revenue, underlining why they depend on Canberra to support their spending on health, education, transport and infrastructure.
At some point we will have to confront the question of what a modern, competitive business tax system looks like to attract investment.
Jennifer Westacott, Business Council of Australia
The NSW Federal Financial Relations Review headed by former Telstra chief executive David Thodey earlier this year recommended states be given a share of the personal income tax revenue so they could become less dependent on grants from the federal government.
Dr Thodey also urged states to agree to broaden the base and/or increase the rate of the 10 per cent GST.
Business Council of Australia chief executive Jennifer Westacott said: “At some point we will have to confront the question of what a modern, competitive business tax system looks like to attract investment across our cities and regions.”
The Tax Institute’s director of tax policy, Andrew Mills, said the COVID-19 recession had illustrated that Australia had too much reliance on income tax and corporate tax and not enough on indirect tax such as the GST.
“A recession causes reductions in profits and wages through unemployment, underemployment and cuts in wages,” he said.
“That leads to reduced taxes, and when you are heavily reliant on those types of taxes the impact is even greater.
“Most other economies are able to see this balanced a little by continued collections in GST/VAT because people still have to spend.” But in Australia’s case that problem is made worse by the fact our GST base is too narrow.
“Many of the things that people keep spending their money on in a recession are the things we don’t tax.”
NSW Treasurer Dominic Perrottet has encouraged the federal government and other states to seriously consider GST reform, but has been rebuffed by most states.
Prime Minister Scott Morrison has said the states need to come to a unified position before the federal government will bother considering the matter.