Who’s a low taxing government? This one!

 

Based on media reports today, the Treasurer Wayne Swan’s Budget will confirm that the tax to GDP ratio will be around 22.1% in 2012-13.   From a historical perspective, this level of the tax to GDP ratio is stunningly low, particularly with the economy in its 21^st year of unbroken economic growth.

If we take the first five Budgets of the Labor Party as a whole, the average tax to GDP will be a tick above 21% which interestingly, is a rate never approached in any of the 12 Budgets delivered under the Coalition Government from 1996-97 to 2007-08.

In an embarrassing fact for the Coalition, the lowest tax to GDP ratio reached during their 12 Budgets was 22.2% and it averaged a chunky 23.4% of GDP for the duration of the Coalition’s time on the Treasury benches.  The tax to GDP actually peaked at 24.2% of GDP in 2004-05 and 2005-06 when the Howard Government took the gold medal for the highest taxing government in Australia’s history.

If a few tenths or an odd percentage point of GDP doesn’t sound much, you are wrong.

In 2012-13 terms, every 0.1% of GDP is worth over $1.5 billion to the tax take.  Clearly, 1.0% of GDP is more than $15 billion of extra tax, every year.  The 2012-13 tax take, at 22.1% of GDP, is therefore leaving around $20 billion per annum in the pockets of taxpayers relative to what they were being taxed on average during the dozen years of the last Coalition Government.

In today’s dollar terms, that’s an extra $400 million a week, every week for 12 years that was being sucked out of the pockets of tax payers with the Coalition’s higher taxes.  Looked at another way, that’s around $20 of extra tax per week for every Australian or around $80 a week just in extra tax for a family of four.

Looked at from a different angle, if the Budget tomorrow were to have a tax to GDP ratio at the average of the Howard Government, the Budget surpluses would be above $20 billion each year and cumulatively, be close to $90 billion over the total of the forward estimates.

In March this year, Shadow Treasurer Joe Hockey gave an “absolute guarantee” that a Coalition government “would deliver lower taxes than a Labor Government.”

This objective is curious given how low taxes are now and given the Coalition’s track record when in government.  If Mr Hockey and the Coalition are to deliver this guarantee, yet aim for Budget surpluses of 1% of GDP at the same time, which is also a Coalition objective, they are going to have to deliver net spending cuts of around $20 billion per annum.  Throw in the fact that they are rescinding the carbon and mining taxes and keeping the bulk of the measures that the revenue from these sources is funding (cut in company tax, extra superannuation, higher pensions, higher tax free threshold), there must be just massive spending cuts lurking elsewhere in Mr Hockey’s top drawer.  Either that, or the guarantee from Mr Hockey is not worth the cyber space it is taking up.