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Tax - The Basics

A fair, simple and sustainable tax system is necessary to provide the essential public services and infrastructure that enables us to live, learn, age and work safely. Taxes pay for hospitals, schools, roads and a range of vital community and business services that allow our country to prosper.

While tax revenue underpins the government’s ability to operate in all areas, it is especially important for vulnerable and disadvantaged people who rely on community services and support.

Australia is not a high-taxing country by world standards. As the table below shows (sourced from OECD statistics) as a percentage of the economy, we are among the lowest taxing in the OECD.

OECD Tax Rates

With this relatively low base there is now a growing concern that the tax system is not raising enough money to meet community needs. The following graph tracks revenue and expenditure at the Commonwealth level, and while the forward projections see a return of revenue, these are based on very optimistic projections of economic growth.

Commonwealth Revenue

State revenues have similar issues and in a landmark paper in 2014, the Grattan Institute analysed current and projected revenues and expenditures and highlighted the problems of meeting health and other government expenditure in the long term.

This conclusion from many analysts is that at both federal and state levels there is a structural budget problem which will confront government of any political colour. To some extent this was hidden over the last decade by favourable terms of trade driven by the mining boom, but the budget problems in the coming years will not be overcome simply by relying on economic growth or cutting expenditure (which itself undermines community and growth potential). There is clearly a revenue problem which will need to be addressed by reforming the tax system - at a minimum by restoring tax revenues to previous (pre-GFC) levels at both state and federal levels.

However, the taxation system does more than simply raise revenue for government and accordingly there are other issues, in particular in relation to fairness and efficiency of taxes. Fairness is required both for the legitimacy of the tax system, and because the tax system (alongside government income support and supply of public goods) is crucial to providing a more equal society. For SACOSS, fairness in taxation requires that there is a greater contribution from those with a greater capacity to pay. Accordingly SACOSS tends to support progressive taxes like income taxes where the rates increase with income, while we are concerned about regressive taxes (including flat rate taxes like the GST) which tend to fall disproportionately on poorer households.

SACOSS will be developing positions and providing public information and comment on these in the near future.

Further Information

Daley, J. Budget Pressures on Australian Governments 2014, The Grattan Institute, Melbourne.

McAuley, I. "Turnbull's Mini Economic Summit: A Chance to Finally Think Big on Spending and Tax Reform", New Matilda, 29 September 2015.

Interview with Ken Henry, ABC 7.30, 22 September 2015.