What Joe Hockey is not telling you about your taxes

Graph of total tax revenue as a percentage of GDP Photo: Re:Think Graph of taxes on corporate and personal income as a percentage of total taxation. Photo: Re:Think
Nanjing Night Net

Joe Hockeyhas said Australians are paying far higher taxes than workers in comparable countries. Photo: Josh Robenstone

Treasurer Joe Hockey has warned Australian workers are paying the second highest level of personal income tax of any country in the OECD, leading to an “unsustainable risk” to government revenues.

But are we missing something?

Mr Hockey has given the impression that Australians are paying far higher taxes than workers in comparable countries. It helps to support his case that income taxes ought to be cut in coming years.

But he has failed to mention something significant: when compared with the size of the overall economy, Australians are paying one of the lowest proportions of tax in the OECD.

According to the Treasury, Australia’s tax take is the sixth lowest out of 34 OECD countries.

Mr Hockey neglected to mention that fact. He has instead chosen to only focus on the composition of the tax pie because, even though Australia has one of the smallest tax takes as a proportion of GDP in the world, it relies more heavily on ‘personal income tax’ than most other developed countries.

Both of those graphs (above) can be found in a recent Treasury discussion paper, but Mr Hockey has only drawn attention to one of them to make his case.

The Australia Institute calls that type of behaviour ‘denominator shopping’, because it involves looking around for the right kind of figure to splice your aggregate data so it supports your argument.

But it has diminished Mr Hockey’s argument.

That’s a shame, because one of the points Mr Hockey is trying to make is a good one: over the next two years, inflation is going to push about 300,000 Australians into the second-highest tax bracket, and that means hundreds of thousands of workers will be paying more income tax without receiving a real pay rise.

Mr Hockey has said previously that he would like to cut the personal income tax rate to prevent that from happening, and some economists have said he could fund those tax cuts by cutting overly generous superannuation tax concessions, or abolishing the capital gains tax discount.

But Mr Hockey’s framing of the debate – where he’s only focusing on the level of income tax as a proportion of total tax revenue – makes it seem as though we could only fund future income tax cuts by cutting government spending again.

He forgets that government spending in Australia, as a proportion of GDP, is already one of the lowest in the world.

Mr Hockey has also intimated that the Abbott government will fix the budget by pursuing tax cuts if it is re-elected, saying Australia has an “over-reliance” on personal income tax, which raised roughly $185 billion last year.

“When personal income tax is calculated as a proportion of total tax revenue, Australia’s taxation level is the second highest among OECD countries,” Mr Hockey warned on Monday.

“We cannot afford to have a tax burden that stifles growth and costs jobs … We want lower, simpler and fairer taxes.”

Greens Treasury spokesman Adam Bandt slammed the push for income tax cuts, given the economic circumstances, saying the government ought to repair the budget by ending “unfair tax breaks” instead.

“At the very time that we have a revenue crisis in this country, the Treasurer is out talking about ways of the government bringing in less money, which would lead to cuts to services,” Mr Bandt said on Monday.

“Instead of talking about tax cuts, the Treasurer should be looking at ending unfair tax breaks, like negative gearing and capital gains tax exemptions that could bring in an extra $13 billion.”

This story Administrator ready to work first appeared on Nanjing Night Net.

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