Tax and spend?

Forbes magazine carries an interesting graphical representation of the most recent OECD data on comparative total tax takes of the 48 member States (including Australia) as a proportion of GDP. As you’ll see, Australia has one of the lowest total tax takes in the OECD, with only the USA, Ireland, Korea, Japan and Mexico below us.

It rather puts in perspective Labor’s opportunist (and stupid for a social democratic party) labelling of Peter Costello as the highest-taxing Treasurer in history.

However, we really need to look a bit more closely at the bar graph. As you’ll see, most European countries have some form of employer and employee social security tax, to fund things including old age pensions (see the blue and yellow sectors of the graph). In Australia we tackle this issue via compulsory employer-funded occupational superannuation contributions to private super funds, at the rate of 9% of employees’ taxable income. This is effectively the same in a functional sense as the European social security taxes, and every bit as compulsory and unavoidable. However, it isn’t included in the OECD total tax take figures (or at least I don’t think it is).

If you include that component, I imagine Australia’s total tax take would rise to somewhere in the high 30s as a percentage of GDP (one of our econo-bloggers might be able to give us a more precise figure). That’s still slightly lower than much of Europe, but very significantly higher than the US and numerous other trading partners. In a globalised world economy where any country’s comparative business costs are unavoidably relevant (unless you advocate re-regulating exchange rates and capital flows and re-imposing tariffs) , it rather suggests that any scope Australia may have to fund (say) revitalisation of Medicare or tertiary education through higher taxes, whether by way of a special purpose levy or failing to return future bracket creep, is likely to be severely limited.

No doubt that inherent limitation on policy flexibility goes some way to explaining the necessarily modest nature of Labor’s announcement yesterday of an additional 20,000 tertiary education places by 2008. It won’t do much to remedy Australia’s failure to fund universities as cutting edge research institutions, but it’s better than nothing.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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woodsy
woodsy
2022 years ago

As a bit of an experiment I have taken the Forbes table referred to by Ken and prepared an alternative analysis.

Change 80 – 01
Turkey 100.00%
Greece 68.60%
Korea 55.37%
Spain 53.71%
Portugal* 41.39%
Italy 37.50%
Finland 27.90%
Iceland 20.42%
Switzerland 19.38%
Austria 14.82%
Australia* 14.55%
Mexico** 12.96%
Sweden 12.00%
France 11.82%
Denmark 11.62%
Germany 9.97%
USA* 9.63%
Canada 8.31%
Belgium 6.59%
Luxembourg 6.53%
Japan* 6.27%
United Kingdom 6.25%
New Zealand 5.45%
Norway 5.15%
Ireland -7.01%
Netherlands -8.06%
Poland* -8.33%
Czech Republic -9.09%
Slovak Republic -10.78%
Hungary -15.90%

If you delete Turkey, Greece, Spain and Portugal because they were re-organising their economies to fit EC conditions then Australia doesn’t fare well in ‘growth rate’ comparison does it?

I must really get a life !

Ken Parish
Ken Parish
2022 years ago

Wayne,

Although I’ve got excel on my PC, for some reason I couldn’t download and open your linked file. I wonder could you explain what the figures in your comment mean a bit more clearly. I deduce that they’re comparing economic growth rates, but over what period and on what basis and where do the figures come from? They look distinctly sus to me. From memory, the last set of figures I saw on growth over the last 5-7 years or so showed Australia at about number 5 in the world.

Ken Parish
Ken Parish
2022 years ago

Wayne,

I think I can see in part what you’re doing. Your figures cover the period 1980 to 2001 (although they still look peculiar by reference to my general understanding of growth in real terms over that period, expressed in PPP rather than an exchange rate basis).

Again purely from memory, Australia’s comparative growth performance was lousy between 1980 and 1986 -7 or thereabouts. Then the Keating economic reforms kicked in and we started to improve, and that improvement has continued and increased (albeit punctuated by the “recession we had to have”). It’s comparative figures of that sort that convince me that at least some of the “globalisation” agenda has been proven correct by experience. However, I suspect people like John Quiggin and (perhaps) Christopher Sheil may have a rather different perspective.

woodsy
woodsy
2022 years ago

Sorry about the inability to download the Excel file – that was the experiment, to see if I could upload a file into MT. It looks like it failed.

To explain the figures, I took the Forbes table, calculated the difference between 1980 and 2001 tax rates, expressed them as a % of the 1980 figure and ranked them. It just seemed to me that another comparative measure could be the increase in proportion of GDP between 1980 and 2001. You know, lies, damned lies and bullshit designed to bolster a particular point of view.

There are 8 million stories in the data, this has been one of them.

Robert
2022 years ago

Ken, Labor’s line about the highest taxing, blah blah is the most stupid aspect of their campaign — especially as they’re trying to differentiate themselves by focussing on high-cost areas such as health and education.

Homer Paxton
Homer Paxton
2022 years ago

Ken,

If you ever look for a job then you will find that Superannuation is NOT employer funded now but taken out of the salary and has been for some time in the private sector except for senior managment of course.
You will also find defintional reasons are why this is not included as tax. I can’t remember them now but my ailing memory tells me that it was valid.

Ken Parish
Ken Parish
2022 years ago

Homer,

I’m anything but an expert on this, but your claim is completely contrary to my understanding and experience. I was an employer until quite recently, and I’m now an employee who recently renegotiated my employment arrangements. Wearing both hats, super was treated as separate from salary and pauid by the employer (at 9% of salary pa). It isn’t part of your salary at all, I don’t think. Of course, it’s perfectly legal for employees to make employee contributions, and some schemes (notably public service ones) actually require a specified minimum level of employee contribution (typically 6%). Naturally those employee contributions are taken from your salary, otherwise they wouldn’t be employee contributions. However, the 9% employer contribution to occupational super is entirely separate from salary (at least notionally) as far as I know. Nevertheless, I could be wrong. As I said, I don’t claim to be an expert on all this, so maybe someone more knowledgeable can tell us (not that I’m suggesting you’re not knowledgeable, Homer).

Stewart Kelly
Stewart Kelly
2022 years ago

Using my own dodgy memory here, but I thought most peoples gain of 9% (or was it 6% at the time)super from employers was offset by the wage freezes of the eighties. One paid for the other. This would imply it is the employee who has paid for their super in foregone wages.

Tiu Fu Fong
Tiu Fu Fong
2022 years ago

The 9% superannuation guarantee payment is paid by the employer, not by the employee. However, many employers advertise “salary” inclusive of superannuation, meaning that the gross figure includes the compulsory 9% employer contribution and the true salary is actually 91% of the advertised figure.

eg “$100,000 salary (including superannuation)” = $91,000 salary plus $9,000 superannuation guarantee payments by the employer. Taxable salary in that case is $91,000.

So you’re both correct, more or less.

Homer Paxton
Homer Paxton
2022 years ago

Ken, that was super!

I didn’t say it was part of the salary but part of the package. So when you get a job worth K100 it includes super ie super is not an addition.
It has been like this ever since it started.

Basically most employers aint paying it.

Niall
2022 years ago

Your should try working on a temporary contract basis. Tracking who’s telling your the truth about the superannuation component is impossible. I know my hourly rate, that’s it. As far as I’m aware, and I have no reason to doubt, I’m paying my own superannuation contribution.

Niall
2022 years ago

Your should try working on a temporary contract basis. Tracking who’s telling your the truth about the superannuation component is impossible. I know my hourly rate, that’s it. As far as I’m aware, and I have no reason to doubt, I’m paying my own superannuation contribution.

Patrick
2022 years ago

I agree that is is silly to compare our tax rates to European ones without adding in our Super, which is just replicating their higher tax that pays for pensions.

But how does the famously low taxing USA compare once you add in their Unemployment Insurance and Social Security, which is the same thing?

Ron Mead
Ron Mead
2022 years ago

There’s no doubt that super is part of an employee’s package and compulsory separated from him/her until retirement age. The whole intent of it is to lower the call on old age pensions for governments in the longer term, particularly as the proportion of people over 65 versus those younger is set to soar.

You can only say it’s met by employers in the same sense that salaries are also met by employers. Both super and salary are payments for an employee’s labour.

Mork
Mork
2022 years ago

Patrick: would expect that social security in the U.S. is treated as a tax for these purposes – the government takes it and keeps it, which is is probably the key factor.

But it would be worth checking whether the U.S. figure includes state and municipal income and sales taxes: if you live in NYC, for example, you pay federal income tax (and social security), state income tax, an NYC income tax plus state sales tax every time you buy something.

(That said, I was still paying much less tax there than I do here).