Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

How highly taxed are we?

By Peter Burn - posted Tuesday, 30 November 2004


According to the Australian Bureau of Statistics, total tax collections in Australia are currently around 31.5 per cent of GDP. In 1965 the share of tax in Australia’s then much lower level of GDP was around 22 per cent.

The introduction of the new tax system has not stemmed the rising tide of Australian taxation. The share of tax in GDP has continued to rise since 2000.

This steady upward drift in taxation does not stop some arguing for further increases in Australia’s tax level. For example, the eminent economist and former Treasury adviser Michael Keating recently attracted a lot of attention when he claimed that tax in Australia is too low and that “the Australian economy could tolerate a significant increase in the ratio of taxation to GDP without great difficulty”.

Advertisement

In recent times two prominent interest groups have expressed similar sentiments. Both the Australian Council of Trade Unions (ACTU) and the Australian Council of Social Service (ACOSS) have suggested that Australia’s level of taxation is relatively low and should be increased.

In all these cases support for these claims rely on comparisons with the simple average of tax levels in OECD countries. The most recent OECD data show that Australia is the eighth lowest taxing of the 30 OECD countries. The simple average level of taxation for the whole OECD is 36.3 per cent of GDP.

Statistics, however, can be deceptive. In particular, simple averages can be the statistical equivalent of ignoring the gorilla in the corner of the room.

The simple averages ignore the very wide disparities in economic significance between different OECD countries. For instance the United States, which accounts for around 40 percent of the GDP of all the OECD countries, is about 500 times bigger than Luxembourg. The simple average treats the US and Luxembourg as equally important.

In the OECD there are two gorillas in the corner. Together the US and Japan comprise about 55 per cent of the GDP of all OECD countries. Both countries are significantly lower taxing than Australia. When the tax levels in OECD countries are weighted by economic size the OECD level of taxation is 31 per cent. This is lower than the Australian level of taxation.

Comparing Australia’s level of taxation with the simple average of tax levels in all OECD countries also ignores the fact that Australia’s trade is spread very unevenly between different OECD countries. Australia’s two largest trading partners are the US and Japan who make up about half of Australia’s total trade with OECD countries. Korea, which is also lower taxing than Australia, makes up another 10 per cent.

Advertisement

When the OECD data are weighted to reflect the importance of different countries in Australia’s two-way trade, the average level of taxation in the OECD is 30.5 per cent. This is also below the level of taxation in Australia.

The simple averages also overlook the differences in proximity to Australia. Over three quarters of OECD members are European countries. These countries only account for around 35 per cent of the GDP of all OECD members and less than 20 per cent of Australia’s two-way trade. Using simple averages for the OECD countries creates an unwarranted and misleading Eurocentric bias.

Although the dominant cultural heritage in Australia is European (including the UK), this should not disguise where we are, whom we trade with and, increasingly, who we are. With the possible exception of our trans-Tasman cousins, Australia is about as far as you can get from Europe. A measure of taxation that, effectively, is three quarters European is clearly an inappropriate benchmark.

  1. Pages:
  2. Page 1
  3. 2
  4. All

First published in the Australian Financial Review on November 25, 2004. Available on the Centre for Independent Studies (pdf file 822kb) web site.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

3 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Dr Burn is the Associate Director Public Policy of the Ai Group.

Other articles by this Author

All articles by Peter Burn
Article Tools
Comment 3 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy