Opinion & Commentary
Public purse is a burden we all carry
IT doesn't have the significance of Anzac Day and you don't get a public holiday for it, but the day before Anzac Day is a special day in the 2007 calendar.
It's Tax Freedom Day, the day that you stop working to finance this year's government spending and start to keep all of your income for your own use. This year, according to the latest national tax tally by the Australian Bureau of Statistics, the average person would have needed to work 113 days -- that is, until April 23 -- to cover their share of national tax collections with nothing left over for their own use. From today until December 31, what they earn they will keep for their own use.
Tax Freedom Day is averaged across the whole population, so for some it occurs later in the year and for others earlier. It assumes that your working year started on January 1 and makes no allowance for weekends and public holidays. All taxes at all levels of government -- commonwealth, state and local -- are included. If you think that businesses and not households pay some of these taxes, think again. Business taxes such as company income tax and payroll tax end up in higher prices for the goods and services households buy or lower dividends on the profits distributed by companies to households. Companies don't pay tax, people do.
Shifts in the timing of Tax Freedom Day trace the growth of the tax burden through the years; the later the date, the bigger the burden.
And the trend clearly has been towards later dates. One hundred years ago Tax Freedom Day fell on January 24. By the start of World WarII it had stretched to February 26 and by the late 1950s to March 19. It has been in April since the early '70s, becoming gradually later during the decades since. This year it has slipped back one day compared with last year, not because the absolute tax burden has failed to increase but because the economy has been expanding even faster. The 113 days that you've worked for government in 2007 can be divided up between the commonwealth, state and local governments, although the commonwealth-state split is complicated by the GST.
If you agree with Peter Costello that it's a state tax, then you've worked 78 days for the commonwealth and 31 days for the states. If you agree with the states and the ABS (among others) that the GST is a commonwealth tax, then you've worked 92.5 days for the commonwealth and 16.5 days for the states. Either way, you've also worked 3.5 days for local government.
This serving of facts and figures is a different and somewhat playful way of illustrating a serious economic issue, namely the size and growth of the tax burden and of the government spending that goes with it.
Tax Freedom Day conveys much the same story as dry statistics such as total tax collections as a share of gross domestic product. This stood at 30.8per cent in the latest year, a fraction down on the year before but a fraction up on the share just before the GST tax reform in 2000.
Likewise, government spending as a share of GDP has inched ahead. The remarkable thing is that government has claimed a bigger share of a rapidly expanding pie. As governments at all levels finalise their 2007-08 budgets this month and next, the fast growth of their spending and tax take is the elephant in every cabinet room. Whether they continue to ignore it will be a test of their fiscal discipline.
Robert Carling, a former commonwealth and state treasury official, is a visiting fellow of the Centre for Independent Studies.
