Where are your tax dollars going?

Ross Greenwood speaks to Senior research fellow at the Centre for Independent Studies Robert Carling after new data has revealed the top 20 per cent of earners are propping up the majority of households.

Introduction: Where are your tax dollars going?

Ross Greenwood:  I want to take you to something else that might get you going and that is just how much tax do you pay and where does it go. Over the past couple of days the government has put out, well, yesterday at the national accounts showing Australia’s growing faster than anticipated. Now given the fact Australia is growing faster than anticipated it is highly likely when the government hands down other than Mid-Year Economic and Fiscal Outlook which is normal in December. There is some sense that the government might go to a mini budget earlier to really set the tone for where Scott Morrison wants to see the country going before he heads into an election period.

Now, what could happen at that time is I believe that the government is going to get pretty close to announcing that even this year the government could get the budget back into surplus. That means if it’s back in surplus once you are making a profit you can start to pay down some debts and or the government could have more money to be able to spend on other programs. Maybe one reason for example why Scott Morrison felt that the government could afford to cut the long term pension age from 70 back to 67 also takes away a political problem for him as well if you think about it. Then you go to the actual breakdown of our society and that is, who is actually paying for the welfare that others receive.

I’ve often told you the spend in the budget just to show that really there is a disproportionate burden on those at the top end of town. Now maybe that’s fair. That’s absolutely fair. Of course they should pay more, but should they pay that increasing burden? What you do not want is your brightest smartest entrepreneurs, scientists, sporting people and others to lead the country because, well, they’re propping up the rest of the country and they’re being taxed to the hilt for it.

Well, there’s been new research which has come out basically done by the research fellow at the Independent or rather the Center for Independent Studies. That’s Robert Carling. I’ll talk to him in a moment, that says the top 20% of households, think about this, the top 20% of households by income almost entirely support the bottom 60% of earners. The top 20% support the bottom 60%. It basically says that there’s a dwindling share of net tax payers in the country. Robert Carling senior fellow at the Center for Independent Studies is on the line. Hello Robert.

Interview with: Robert Carling, Senior Research Fellow, Center for Independent Studies

Robert Carling: Good evening Ross.

Ross Greenwood:  This can’t go on because ultimately you’ll get down to four taxpayers supporting the rest of the country because everybody’s got some sort of welfare cheque they’re reserving back from the government.

Robert Carling:  [laughs] Well, that’s right. That seems to be the way we’re heading.

Ross Greenwood:  If we have an aging population, more people becoming retirees, fewer people actually of working age, fewer people really earning and paying net tax. That’s a fundamental problem for Australia.

Robert Carling:  Yes. We’ve we’ve crunched the numbers with help of the Bureau of Statistics numbers actually and we think that if you add up the people who are net beneficiaries that is the benefits they receive from government minus the taxes they pay, so net beneficiaries plus those on the public sector payroll. Let’s call all of these people beneficiaries of government in a sense. They now comprise probably a small majority of voters but whether it’s a majority or not quite a majority. They are a very powerful force in politics for more of the same.

Ross Greenwood:  Okay. Isn’t the problem that if we’re talking about the 60% of taxpayers and earners who are at the lower end who are receiving net more than what they’re paying out in tax. 60% is a majority.

Robert Carling:  Well, look it’s [crosstalk]

Ross Greenwood:  It’s very hard to argue about it if you’re a politician because the numbers don’t lie. 60% is going to beat 20% every day of the week.

Robert Carling:  These are averages, Ross. Some of the households within these groups would be plus and some of them would be minus. When you add them all up individually it comes to just over 50%, but the point is that there are a lot more than you think there might be. Now it’s fair enough that in the the bottom income say 20% of the population of households they would be net beneficiaries clearly and then maybe even the next 20%, but once you get into the middle 20%, would you expect them to be net beneficiaries also? On average they are and even in the next 20% they’re almost line ball. It’s only the top 20% that clearly are net contributors.

Ross Greenwood:  This is fundamentally a structural flaw in what’s called our Tax and Transfer System. The transfer system being Family Tax Benefits A and B, it can be pensions that are paid out. It can be disability pension, whatever it might be, childcare support, all of those things add up into that transfer system don’t they.

Robert Carling:  We’re also going into this calculation. Things like health benefits, Medicare benefits and education benefits. All of that goes into the calculations.

Our point is that it has created a constituency, a very large constituency to demand more of the same. We’ve seen that with Gonski Funding and we’ve seen it with childcare subsidization and as you mentioned we’ve seen it very recently with the governments decision on the pension eligibility age. It’s created that constituency, it’s also created the strong incentive for our political parties to cater to this group. They are coming up with policies that are essentially buying votes.

Ross Greenwood:  What you’re doing by this piece of work is effectively billing the cut that this can’t go on forever. That the easy political argument that we can’t give the rich any tax cuts because they can afford it, they are okay, they’re all going well up there. We’ve got to give it all down to the bottom end, but at some point this all runs out because as you continue to give it to the middle and lower income earner desperately though they might feel that they need it, if you don’t ultimately spread the love, spread the wealth out around the place you’re going to have a situation where you don’t have enough net tax payers in the country.

Robert Carling:  Exactly. It’s a very short sighted approach. The government policies are being driven by short term-ism. Again the decision on pension eligibility age is a great example of that short term-ism. It’s going to be a problem in the long term. Pushing it up to age 70 it wasn’t going to help the budget even the next eight years. It was a long term benefit to the budget, helping to close that long term fiscal gap, but we don’t seem to have that capacity now to look that far ahead. It’s all driven by short term-ism.

Robert Carling:  You’re welcome. Ross.

Ross Greenwood:  There you go, Robert Carling, senior fellow at the Center for Independent Studies. Well, if you’re in the top 20% or if you’re in bottom 60% of income earners give us a call on 1-3-1-8-7-3. Is there fairness? Is there common sense in what Robert Carling says? From the political class remember the easy argument is, “Oh, well let’s take from the rich give to the poor>” It’s what we have always done until ultimately you make the wealthy poor by virtue of your tax system and they decide to take their skills and their ideas and move overseas where it might be a bit cheaper. 1-3-1-8-7-3 is our number. Robert Carling many thanks for your time.

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Happy Tax Freedom Day

Image source: 2GB

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