Hal Swerissen

Australia’s low taxation rate and inefficient tax mix is contributing to social and economic problems that need to be fixed.

The latest OECD review of taxation statistics shows Australia is a tax laggard with a distorted tax system. Taxation as a proportion of Gross Domestic Product is currently 14 percent lower than the OECD average. Australia is ranked 30th out of the 38 OECD countries.  It has been around that level for more than a decade. 

Compared to the OECD Australia has a low tax rate, higher taxes on personal income, corporate tax and property taxes and much lower taxes on goods and services and contributions to social security. 

Despite public perceptions, compared with its peers Australia remains a minimalist welfare state with an expectation that the market and full employment will take care of social, economic and environmental wellbeing. Government is more seen as a necessary evil rather than a force for prosperity and wellbeing. The result is that a number of modern day social investment programs are under funded and only grudgingly accepted. This includes:

Child care

Aged care

Social housing 

Health care

Tertiary education

Add to this the almost complete government failure to address housing affordability over the last two decades. During that time housing has become a massive Ponzi scheme – more about speculative wealth creation than actually meeting social need. Small scale investors gamble on capital gains and short term rentals fuelled by population growth and a fixation with low density not-in-my back-yard-planning.

As a result the cost of buying an average house has gone up from around 3 times average earnings to about 8 times average earnings. Not surprisingly housing ownership is now falling particularly for the young and the poor. At the same time rental costs are rising steeply and renters have some of the worst conditions in the OECD.

Taxation is not the only cause of the housing market failing to meet social need – poor planning schemes, the growth of short term rentals and immigration driven population growth matter too – but negative gearing and capital gains concessions are a significant contributing factor to the culture of speculative and unproductive investment in housing.

Government unwillingness to address our failing tax policy means Australian governments have less fiscal power to invest in the future, particularly as interest rates go up and borrowing becomes more expensive. Most notably Australia is well behind in the development of renewable energy and in research and investment in future industries. As a result Australia remains heavily dependent on ageing fossil fuel infrastructure for our energy and growing things and digging stuff out of the ground to pay for our imports.

For decades, both Labor and Coalition Governments have been unwilling to tackle the structural problems built into the current Australian taxation system. Powerful vested interests in the farming, mining, property and energy sectors have successfully scuppered structural reform. As a result we have inequity, lower social investment, antiquated energy infrastructure and a failure to invest in the future economy.

In 2019 Labor went to the election with a modest set of taxation policy reforms only to lose saw to a concerted scare campaign. In 2022 Labor adopt a small target strategy to appease vested interests so they could to get across the line .

Since its election, the new Federal Labor Government has competently managed the economy. Inflation is heading in the right direction. Modest election promises are being implemented. The budget’s back to balance and some of the most pressing underfunding in social programs have been addressed after a decade of neglect. Wages are beginning to grow again and it’s likely cost of living pressures will ease in the next year.

Labor has also made a recent major commitment to addressing renewable energy. The Albanese government will underwrite renewable energy schemes to achieve its climate emissions targets.

But that still leaves the three major challenges: housing, social investment, and the economy of the future in addition to financing the cost of the transition to renewables. Massive investments in energy, housing, health, disability, aged care, child care, education and industry development are needed for Australia’s future well being.

Getting elected is not an end it itself. Fixing the problems left behind by the coalition was a good first step, but now it’s time to set the path for a future for profitable, fair and sustainable Australia.

A failing tax policy isn’t going to cut it. More reliance on taxes on consumption, land, natural resources, wind fall profits and carbon emissions and of a bunch of inefficient and unfair tax exemptions have to be debated if Australia is going to have the living standards and the kind of society people want.