Finance Finance News We’re world growth leaders, but why is the government so skint?

We’re world growth leaders, but why is the government so skint?

Government coffers shrink.
Lower tax collections mean government coffers are depleting. Photo: Getty
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Australia’s economy looks great on paper. We’ve racked up 102 quarters of GDP growth on the trot and if our luck holds till June we’ll have beaten the Dutch record of 103 quarters, or 25.75 years, without a recession.

But the fruits of that labour aren’t making their way through to the government’s coffers.

“Our annual real growth is still higher than six out of the world’s G7 economies, second only to the United Kingdom. Higher than the US, Canada, Japan, Germany, and higher than the OECD average,” Treasurer Scott Morrison said last month.

But that take on reality notwithstanding, as a country we are racking up debt and the Treasurer has told us the cupboard is bare.

Despite the luck and planning that kept us on course through the financial crisis there is something troubling happening to Australia’s budget. We’re not raising the tax that we should be and that is an important factor in keeping the federal budget in deficit to the tune of about $38 billion.

Tax collections are down. Source: Grattan Institute
Tax collections are down. Source: Grattan Institute

This analysis from the Grattan Institute shows that all the major tax categories – personal, company and indirect (mainly GST) – have slid markedly as a percentage of the economy in 10 years.

Not only that, but the size of the annual tax take is undershooting Australian Tax Office estimates. And the ATO is not known for its recklessness so that undershooting tells us there are some serious discrepancies loose in the economy.

For another point of reference, it’s interesting to look at how the tax take is growing. Last financial year, tax collected from individuals rose 4.8 per cent, company tax collected rose 1.7 per cent and the GST take was up 5.3 per cent.

Back in 2005-06, just before the GFC, individual tax was up 6.7 per cent, company tax up a whopping 20 per cent and GST collections rose 6.6 per cent. So not only are tax collections making up less relative to the economy as a whole, they’re growing more slowly than 11 years ago.

So what’s going on?

John Daley, CEO of the Grattan Institute, told The New Daily cyclical factors like the end of the mining boom along with low inflation and low GDP growth were pushing down income tax collections, while “spending on areas like health and the NDIS (national disability insurance scheme) were increasing”.

Another write-down looms

“The outlook for income tax is very uncertain and they’ll probably have to write-down the income tax figure again this year,” Mr Daley said.

There is an unremarked-upon negative for the budget in the housing boom, Mr Daley said.

“We are spending much more on housing and the resulting mortgage repayments, and there is no GST on those. That’s affecting the amount collected in GST,” he said.

Another factor affecting GST collections is the big jump in the savings rate post-GFC period. Back in 2001 the savings rate was around zero, now it’s 11 per cent which means money is going into bank accounts, not across shop counters where GST would be levied.

Housing is hitting the budget. Photo: AAP
Housing is hitting the budget. Photo: AAP

Helen Hodgson, associate law and tax professor at Curtin University in Perth, said research had shown that negative gearing benefits combined with the 50 per cent discount applied to the capital gains tax is costing the budget over $5 billion a year.

“The question to ask is ‘has the capital gains discount resulted in an increase in productive investment as its proponents said it would when it was implemented?’ It looks as if much of it has gone into less productive areas like negatively geared property,” Dr Hodgson said.

Given the budgetary situation “we should not be looking at company tax cuts in this environment. I don’t think the cost to revenue will have the effect of delivering the productivity increases (its supporters) argue for”.

Mr Daley said the fall in superannuation tax revenue appeared to be the result of super funds managing their capital gains tax liabilities in smarter ways.

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