Ideas@TheCentre
Tax Freedom Day arrives
As Tax Freedom Day came and went this week, it was sobering to contemplate the line-up of new Commonwealth taxes in the pipeline.
The Centre for Independent Studies declared 6 April as Tax Freedom Day. The wealth generated by Australian individuals (‘working families’) and businesses between New Year’s Day and 5 April, if taken in its entirety as taxation, would have been just enough to satisfy the demands of government at all levels for the whole year. From 6 April, the private sector began working for itself.
It has been worse in the past. In the 1990s, Tax Freedom Day didn’t come until 19 April on average. Unfortunately, the move to an earlier date last year (10 April) and this year is likely to be an aberration, as it resulted mainly from a temporary fall in tax revenue due to the global financial crisis. That fall in tax revenue will be reversed, making Tax Freedom Day later in the years ahead.
Discipline in government spending is the key to a sustainably lower tax burden. Currently, spending is running well ahead of revenue. The gap represents a potential tax increase that would make Tax Freedom Day 13 days later than it was this year. The Gillard government plans modest curbs to Commonwealth spending, but the details remain to be seen.
In the meantime, there are three new and permanent taxes in the pipeline plus the temporary flood levy. The three new taxes are the minerals resource rent tax, a carbon tax of some form, and possibly a tax to fund the mooted national disability insurance scheme. There will be some offsets, but it would be surprising if these taxes failed to result in a net increase in the tax burden over time. This is another reason for thinking that future tax Freedom Days will be later.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
