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20 April 2015
by Kaye Lee

You get what you pay for

While their philosophy remains to cut spending and lower taxes, the Abbott government are unlikely to produce an equitable budget.

As John Daley of the Grattan Institute put it:

“If you try to fix on the spending side, you only hit the bottom half. If you fix on the tax side you more or less hit the top half.”

Abbott and Hockey recently attracted the ire of the business community for scrapping the planned cut to company tax.

Increasingly, Singapore, where company tax is 17%, is attracting global corporations (and wealthy individuals) seeking to minimise their tax obligations. Business would like us to reduce our tax rate to something competitive.

What they don’t mention is that Singapore has scant welfare, no free health or pensions. Unemployment, aged care, disability and illness are all the responsibility of the individual or extended family. Many are forced to work into their old age.

While lowering corporation tax makes sense for nations competing with other nations to stimulate manufacture and service industries, for primary industries like mining, there is little need to compete. It is not as if Gina Rinehart can go and mine iron ore in Bangladesh if the tax regime here isn’t to her liking.

And given mining is such a small employer relative to the wealth it generates, a decent corporation tax is necessary if the nation wants to get any wider economic benefit.

Australia is one of two OECD countries (the other being New Zealand) that do not levy social security taxes. In contrast, social security taxes are a large source of direct taxation revenue (27.1% on average) for a significant number of OECD countries.

When it comes to personal income tax, Australia’s top marginal rate of 49 per cent is almost eight percentage points above the OECD average of 41.58 per cent.

However, it is by no means the highest. For those who are willing to exchange high income tax for excellent public services, Sweden (57 per cent) and Denmark (55.56 per cent) are much more appealing destinations than Australia.

While Australia doesn’t tax at the top rate until your annual income hits $180,000, these two Scandinavian nations start a lot lower – Denmark at $86,000 a year, and Sweden at $93,000.

Austria, Belgium, Finland, Israel, Japan, the Netherlands, Slovenia and Spain all have top marginal rates above 50 per cent. Interestingly, this group of countries plus Australia boast nine of the world’s 11 most liveable cities, as judged by Monocle.

This suggests that, as a rule, a high level of income tax corresponds to a high level of liveability.

If the people of Australia want protection for our vulnerable, health care and education for all, as well as improved infrastructure, then we must be prepared to pay for it.

Likewise, if businesses want to take advantage of a wealthy market in a resource rich, politically stable country with well-established infrastructure, then they must contribute their fair share.

You get the society you are willing to pay for.