What the pollies never tell us is that, if you want it, it will cost you. But one woman who is game to tell us what the politicians aren’t is Aruna Sathanapally, boss of the Grattan Institute. In a speech a year ago she told the unvarnished truth: our governments are “not raising enough revenue for what we spend”.
No one wants to pay more tax. And the richest of us protest more and fight hardest when asked to cough up a little more. I meet people who tell me we’re already overtaxed.
Treasury secretary Dr Steven Kennedy showed a graph of the budget’s “structural” deficit stretching out to 2035-36. Credit: Rhett Wyman
Nonsense. “We are a relatively low-tax country with high service expectations. Pre-COVID, Australia was eighth-lowest ranked country in the Organisation for Economic Co-operation and Development for tax collections relative to our country’s size, five percentage points lower than the OECD average,” Sathanapally says.
“Yet, Australians expect high-quality healthcare, aged care, and disability care, among many other things. Like other rich nations, government spending has grown as a share of the economy, particularly in recent decades.
“But our tax base is going in the opposite direction: narrowing as the population ages with the growing cost of tax concessions.
“This leaves a structural gap,” Sathanapally says. “You can tackle the structural problem by reducing spending, increasing revenue, and by growing the economy.
Loading
“Growing the economy is the easiest solution to sell, but it is the hardest to achieve in practice. Australia, like other advanced economies, is expecting slower economic growth over the next 40 years than we’ve had over the past 40 years. Even if productivity growth exceeds expectations, it is still unlikely to close the structural gap.
“As a relatively low-tax country, we can afford to raise more revenue, but of course there are better and worse ways to do this. Broadening the tax base and reducing tax concessions tend to be much less economically damaging than simply raising the headline rates of tax.
“Australia’s tax mix asks workers and companies to shoulder most of the burden, while offering substantial concessions for wealth. Wealth in housing and superannuation gets particularly generous treatment.”
“Take superannuation tax breaks for example. They cost the budget almost $45 billion a year and are projected to cost more than the age pension by 2036. These tax breaks predominantly benefit the top 20 per cent of income earners, so they do little to actually reduce age pension spending.
“Meanwhile the combination of capital gains tax breaks and negative gearing encourages speculation in the housing market in place of other more productive uses of funds,” she says.
We know how hard politically governments find it to fix these problems, “but frankly, we are sitting on a wretched generational bargain, and it has gone on for long enough.
“Young people today already face the prospect of weaker wage growth, higher hurdles to owning a home [or more likely, a lifetime of renting] and a future shaped increasingly by extreme weather and natural disasters.
Loading
“Yet, we ask our young people – our children and grandchildren – to contribute more towards supporting older generations than our older generations ever contributed when they were of working age,” she concluded.
Phew. It’s not often people in public life say things of so frank, so honest, so disinterested good sense that I want to quote them at such length.
Next, why doesn’t the business press write a desk-thumping editorial explaining how Sathanapally got it all so badly wrong.
