According to the Tony Abbott led government, Australia faces a budget emergency and needs immediate action to rectify it. Unfortunately, the government has decided that it will use similar ill-fated austerity measures that have ruined European economies, by slashing funding to essential services, including education and health, as well as cutting welfare and pensions.
In his May 2014 budget speech, Treasurer Joe Hockey stated 'We are a nation of lifters. Not leaners'.
Admirable words. Inspiring. Except that the government's attack on welfare recipients is implying that they are leaners rather than lifters. The real leaners, however, are those who are avoiding their tax obligations.
Part of the budget meant that high income earners (earning more than $180,000 per annum) would pay a temporary Budget Repair Levy of 2% for three years. This is pretty much the extent of lifting that they are expected to contribute. The remainder of the lifting is being done by welfare recipients, pensioners, low and middle income earners, students. Essentially, the lifting is being done by those who can least afford it.
Sadly many of these same people voted for this government, believing the budget emergency lie propagated by the LNP when it was in opposition. Australia's national debt is around $367 billion or 22% of GDP according to the government's Mid Year Economic Fiscal Outlook (MYEFO) for 2014-15 (1). To put this into perspective, it would be equivalent to a person on $100,000 per annum having a $22,000 mortgage. Hardly time to panic. The government loves fear-mongering and managed to manipulate its way into power through the misrepresentation of Australia's fiscal position while it was in opposition.
While in opposition, the LNP gave no latitude to the Labor Party when they argued that external factors such as the Global Financial Crisis or falls in prices for iron ore or other raw materials were contributing to the deficit. This deficit which the LNP made such a big deal about prior to the election, was doubled by the LNP within only a few months of them coming to power (2). It wasn't doubled because of the debt inherited from Labor, but through spending and budget measures undertaken by the LNP, such as giving $8.8 billion to the Reserve Bank of Australia, and the repeal of revenue generators such as the carbon price and the minerals resources rent tax. Additionally, iron ore prices have plummeted recently which Treasurer Hockey is blaming for a further decrease in government revenues ... the same excuse that he refused to let Treasurer Wayne Swan get away with. What's good for the Swan is good for the ... well, you get it. Hockey's hypocrisy and hyperbole is horrendous.
During the GFC, the Kevin Rudd led Labor government, with Wayne Swan as Treasurer, ensured that Australia was kept out of recession. It was only one of two countries to avoid recession. It did so, not by implementing austerity programs, but by spending predominantly in two of the largest employment sectors: retail and construction. It was basic Keynesian economics: if the economy is sluggish, stimulate it. If no-one is spending, then the government should, otherwise consumers stop spending, businesses go to the wall and people lose their jobs. It was estimated that Rudd and Swan's stimulus program saved up to 200,000 jobs (3).
Hockey's plan is to take money out of people's pockets and slash government jobs. With less money to spend and less job security, consumer confidence will drop driving business revenue down which both reduces taxes taken by the government and increases job cuts in the private sector. Just on a year into the Abbott government's term, unemployment is at 6.3% which is an 11 year high; even surpassing the rate seen during the GFC (4).
It is clear that Australia's budget position is not in dire straits. If the government embarks on slashing expenditure in key sectors it will drive the economy into recession. Spending shouldn't be cut; revenue should be increased.
Speaking of revenue. Tax is paid on earnings. While most small and medium sized businesses pay their taxes, the big end of town is notorious for minimising, avoiding or evading tax. It was recently revealed that 75 of Australia's highest income earners paid no tax. Between them they earned $196 million or an average of $2.6 million each. Yet they paid no tax, Medicare Levy or Medicare surcharge. They did it through claiming tax right-offs that reduced their COMBINED annual taxable income to $82, or an average of $1.10 per annum each. (5)
The Tax Justice Network Australia produced a report that shows Australia's Top 200 companies paid an average tax rate of 23% instead of the statutory rate of 30% that they should have paid. This costs the government $8.4 billion per year. However, around one third had an average effective tax rate of less than 10% while 57% had subsidiaries in secrecy jurisdictions and 60% had debt levels above 75% that would have reduced their taxable earnings. (6) It is likely that were all of these factors to be mitigated there would be significantly more than $8.4 billion collected by the Commonwealth.
The tax that the government is missing out on from Australia's wealthiest individuals and its top 200 corporations is more than the combined impacts of its policies on welfare recipients, pensioners, students, low and middle income earners. Refer to the budget paper to see the measures the government is taking, including indexing pensions to CPI rather than wage increases, a $7 co-payment for medical visits (now changed to a reduction of $5 in the Medicare rebate that doctor's may claim - which will be passed onto patients), deregulating university fees, changing thresholds for claiming various benefits. The budget also included preventing recipients of unemployment benefits from claiming income support for six months of the year. (7) Thankfully, common sense prevailed and the six month suspension of income support was rejected by opposition parties and has now been withdrawn by the government.
The budget unfairly targeted the most vulnerable in society while letting the wealthiest get away without their fair share of the lifting. Revenue is the secret to reducing debt and deficit.
A Vermont government committee once stated: 'Taxation is the price which we pay for civilization, for our social, civil and political institutions, for the security of life and property, and without which, we must resort to the law of force'.
If the government is truly interested in reducing government debt and returning the economy to surplus it could certainly address tax minimisation strategies that the big end of town is using to avoid contributing to the economy. It isn't welfare, pensioners, students or workers who are risking Australia's economic future. It is the wealthy individuals and big businesses who avoid, in one form or another, their tax obligations.
1. Australian Government, Mid-Year Economic and Fiscal Outlook (Released 15 December 2014), Part 3: Fiscal Strategy and Outlook, Attachment F: Debt Statement, Table 3.37: Estimates and projections of CGS on issue subject to the Treasurer's Direction. For interest payments, refer to Table 3.45: Interest payments and interest expense, http://www.budget.gov.au/2014-15/content/myefo/html/09_attachment_f.htm. Accessed 29 December 2014.
2. ABC Factcheck, 10 June 2014. 'Has the government doubled the deficit'. http://www.abc.net.au/news/2014-05-06/has-the-government-doubled-the-budget-deficit/5423392. Accessed 29 December 2014
3. ABC News, 17 September 2009, 'Stimulus saved 200,000 Australian jobs: OECD', http://www.abc.net.au/news/2009-09-16/stimulus-saved-200000-australian-jobs-oecd/1432016. Accessed 29 December 2014
4. Trading Economics, 'Australia Unemployment Rate', http://www.tradingeconomics.com/australia/unemployment-rate. Accessed 29 December 2014.
5. Peter Martin, 13 May 2014. 'Budget pain? Not for millionaires who pay no tax'. http://www.smh.com.au/comment/budget-pain-not-for-millionaires-who-pay-no-tax-20140513-zr9o3.html. Accessed 29 December 2014.
6. Tax Justice Network Australia, 'Who pays for our common wealth - Tax practices of the ASX 200'. http://taxjustice.org.au/wp-content/uploads/2014/09/Who-Pays-ASX-200-Full-Report.pdf. Accessed 29 December 2014.
7. Australian Government, Budget Papers 2014-15, http://www.budget.gov.au/2014-15/index.htm. Accessed 29 December 2014.