The tax return season comes around with monotonous regularity, but this year for the first time you can look forward to a “tax receipt” with your assessment notice.
This is Joe Hockey’s way of thanking you for “your tax contribution” (not that you have much choice) and informing you of how it was spent.
This is a welcome civics lesson as far as it goes, but there is much more to the story than the tax receipt tells.
Bringing a $400 billion budget down to the personal level can be a handy way of improving fiscal literacy, as billions of dollars and percentages of gross domestic product have little meaning to the average punter.
Surveys often reveal that people have a grossly inaccurate impression of what governments spend taxpayer money on and how much tax they and others pay. The more that is done to improve people’s understanding of these matters, the harder it is for governments to use the tricks of fiscal illusion. Just perhaps, it also makes people more willing to swallow harsh budget medicine.
But the risk of simplifying the individual’s interface with government through the tax receipt is that it oversimplifies. For a start, it covers only personal income tax.
This limitation is understandable if exact dollar amounts are to be attributed to individuals, as it is the only tax to be calculated and reported in that way. However, everyone pays a lot more in other taxes, and many people pay no personal income tax at all but are contributing through other taxes.
Personal income tax is a bit less than half total commonwealth taxation and less than 40 per cent of taxation at all levels of government. Of the other taxes, some such as GST, excise duties, certain stamp duties and local government rates can be linked directly to households. Others, such as company income tax and payroll tax, are business taxes but are paid indirectly by households as their final incidence works its way through wages and consumer prices.
The Australian Bureau of Statistics has estimated that most households pay more in a selected range of consumption-type taxes than they pay in income tax. As a further illustration of the point, while personal income tax was a little more than $7000 per capita in 2012-13 (the latest year of actual data), total commonwealth tax was $14,760.
Another important caveat is that governments have been spending more than they’ve been taking in taxes. Part of this spending is accounted for by non-tax revenue, but at the federal level most of it is deficit-spending. The tax receipt will tell you how much gross debt the commonwealth has, but not how much of its spending was deficit-financed.
An alternative version of the federal tax receipt would cover all federal taxation, all spending and the gap between the two, expressed in per capita terms. It makes sense to leave out GST revenue and the corresponding grants to the states (as the ATO tax receipt does) on the grounds the GST is effectively state revenue; to report the commonwealth spends that amount on the states tells taxpayers nothing of what it is ultimately spent on.
Ideally, a personalised statement of what you pay to governments would be matched by a personalised statement of what you receive directly each year: pensions, family benefits, child care benefits, private health insurance rebates, Medicare and pharmaceutical benefits, and so on. Such a statement would be sent to everyone with a Medicare card, not just the subset that pays personal income tax.
Under current systems, bringing all this information together for every individual or household is probably a bridge too far, but hopefully one day it will be done. In the meantime, the ABS tells us that in aggregate for many households the direct and indirect benefits received from government exceed the tax they pay.
There will always be large parts of the budget that cannot be personalised, such as defence and foreign affairs, but these can be expressed in per capita terms.
State and local government adds another dimension. Taxation per capita at all levels of government combined was more than $18,000 in 2012-13 and expenditure per capita more than $23,000. It is necessary to look at federal and state spending combined to gauge spending in areas such as health and education, where both levels of government are heavily involved.
When you receive your tax receipt in the coming months, there are two things to remember: your personal income tax liability substantially understates what you are paying to the federal government, let alone all three levels of government combined; and what you are paying still isn’t enough to cover the total expenses of government. Look at cis.org.au/yourtax for a more complete picture.
Download full report here
Robert Carling is a senior fellow at the Centre for Independent Studies.
Home > Commentary > Opinion > Hockey’s tax receipts don’t reveal the deficit
Hockey’s tax receipts don’t reveal the deficit
The tax return season comes around with monotonous regularity, but this year for the first time you can look forward to a “tax receipt” with your assessment notice.
This is Joe Hockey’s way of thanking you for “your tax contribution” (not that you have much choice) and informing you of how it was spent.
This is a welcome civics lesson as far as it goes, but there is much more to the story than the tax receipt tells.
Bringing a $400 billion budget down to the personal level can be a handy way of improving fiscal literacy, as billions of dollars and percentages of gross domestic product have little meaning to the average punter.
Surveys often reveal that people have a grossly inaccurate impression of what governments spend taxpayer money on and how much tax they and others pay. The more that is done to improve people’s understanding of these matters, the harder it is for governments to use the tricks of fiscal illusion. Just perhaps, it also makes people more willing to swallow harsh budget medicine.
But the risk of simplifying the individual’s interface with government through the tax receipt is that it oversimplifies. For a start, it covers only personal income tax.
This limitation is understandable if exact dollar amounts are to be attributed to individuals, as it is the only tax to be calculated and reported in that way. However, everyone pays a lot more in other taxes, and many people pay no personal income tax at all but are contributing through other taxes.
Personal income tax is a bit less than half total commonwealth taxation and less than 40 per cent of taxation at all levels of government. Of the other taxes, some such as GST, excise duties, certain stamp duties and local government rates can be linked directly to households. Others, such as company income tax and payroll tax, are business taxes but are paid indirectly by households as their final incidence works its way through wages and consumer prices.
The Australian Bureau of Statistics has estimated that most households pay more in a selected range of consumption-type taxes than they pay in income tax. As a further illustration of the point, while personal income tax was a little more than $7000 per capita in 2012-13 (the latest year of actual data), total commonwealth tax was $14,760.
Another important caveat is that governments have been spending more than they’ve been taking in taxes. Part of this spending is accounted for by non-tax revenue, but at the federal level most of it is deficit-spending. The tax receipt will tell you how much gross debt the commonwealth has, but not how much of its spending was deficit-financed.
An alternative version of the federal tax receipt would cover all federal taxation, all spending and the gap between the two, expressed in per capita terms. It makes sense to leave out GST revenue and the corresponding grants to the states (as the ATO tax receipt does) on the grounds the GST is effectively state revenue; to report the commonwealth spends that amount on the states tells taxpayers nothing of what it is ultimately spent on.
Ideally, a personalised statement of what you pay to governments would be matched by a personalised statement of what you receive directly each year: pensions, family benefits, child care benefits, private health insurance rebates, Medicare and pharmaceutical benefits, and so on. Such a statement would be sent to everyone with a Medicare card, not just the subset that pays personal income tax.
Under current systems, bringing all this information together for every individual or household is probably a bridge too far, but hopefully one day it will be done. In the meantime, the ABS tells us that in aggregate for many households the direct and indirect benefits received from government exceed the tax they pay.
There will always be large parts of the budget that cannot be personalised, such as defence and foreign affairs, but these can be expressed in per capita terms.
State and local government adds another dimension. Taxation per capita at all levels of government combined was more than $18,000 in 2012-13 and expenditure per capita more than $23,000. It is necessary to look at federal and state spending combined to gauge spending in areas such as health and education, where both levels of government are heavily involved.
When you receive your tax receipt in the coming months, there are two things to remember: your personal income tax liability substantially understates what you are paying to the federal government, let alone all three levels of government combined; and what you are paying still isn’t enough to cover the total expenses of government. Look at cis.org.au/yourtax for a more complete picture.
Download full report here
Robert Carling is a senior fellow at the Centre for Independent Studies.
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