Around this time of the year and rolling into Christmas we get updates on how the Federal Government’s budget or money management is going, and invariably we learn that we are one of the highest income tax countries in the world. But what few news stories in the popular press ever play up is the fact that this is because our GST is 10%.
Today I am in Montenegro and both my driver, who took us to the One & Only Hotel in that country, and one of my waiters at the restaurant we went to, complained about the 21% VAT they pay on the stuff they buy!
You see, governments have jobs to do, and they need tax revenue to pay for it and it either comes from income taxes — taxes on wages, salaries and company profits — or it comes from taxes on goods and services.
Many a courageous politician has talked about the need to increase the GST to raise more revenue to permit lower income taxes, but smart politics tells them to not try too hard to get this idea across the line at an election.
In Malcolm Turnbull’s brown leather jacket days, before he unseated Tony Abbott as Prime Minister, he talked about the need for tax reform but as PM he dropped the idea of a 15% GST, which tax reform implies.
The words tax reform is a cover up for what smart politicians and well-trained economists know means less income tax and more tax on goods and services.
However, the smartness of the politicians in question means they never push it when it comes to an election because most Aussies would do an Aimy Winehouse and say: “No, no, no!”
All of this puts today’s AFR story into historical context, when we learn that income tax has hit a 25-year high!
Earlier this week we learnt that Treasurer Jim Chalmers had knocked up a second budget surplus of $15.8 billion, which was $6 billion better than expected, but going forward this is expected to turn into a deficit of $18.8 billion and it then grows to $35.1 billion by 2025-26.
So today we also learnt the following about the tax we’re paying:
- Government spending was $10 billion lower than forecast because unemployment has not gone too high and that helped the surplus.
- This saved the Government $4.2 billion in grants to the states for infrastructure and other social programs.
- Personal income tax topped $331 billion, or 52 per cent of the federal government’s total tax take.
- Average tax per Aussie is now $17,000 and that’s a record-high!
- The recent tax cuts will reduce the income tax hit but only from 52% to 51%.
- Bracket creep, which taxes workers more as they get pay rises and creep into a higher tax bracket helps the Government collect more taxes.
- The total tax take from the Government is now 23.7% but it is less than the UK which is 33.1% of GDP, which is close to the OECD average.
Expert tax economists have been telling us for decades that Dr John Hewson was right to recommend a 15% GST but the fact he lost the unlosable election to Paul Keating in 1993, explains why we pay a lot of income tax here in Australia.
And this will not change until we get a credible leader who can convince us that our income tax fall that would come with a 15% GST will outweigh the tax slug from a bigger tax on everything we buy.
A higher GST or VAT, which they have in Europe, might be the best economic idea, but try telling that to someone paying 15% or 21%! You know I’m an economist, but I don’t even try to convince normal people about why we need a 15% GST because voters don’t trust politicians to deliver on their promise that a higher GST will deliver permanently lower income taxes.
And given our pretty uninspiring politicians, I don’t blame them!
