Guest Post: Michael Potter – Step away from the tax increases!

Tony Burke’s belief that taxes are too low is based on a flawed argument: in one (carefully) chosen year, 2002, taxes were higher than they are now. So therefore taxes should increase.

Why choose 2002? There are plenty of other years to choose. We could easily choose 2011. The tax-to-GDP ratio was much lower then.

So I vote for using 2011 as a comparison year. Forget the fact this was the middle of the Global Financial Crisis; if we go with my vote, then we must cut taxes now. Specifically, the tax-to-GDP ratio is currently 2.4 percentage points too high, and we need tax cuts of approximately $40 billion.

This whole absurd discussion shows the flaws in comparing today’s tax levels with another year. So why did Mr Burke choose 2002? Probably for two reasons: it shows taxes are too low; and it was the year used by Dr Ken Henry (former Secretary to the Treasury) in a recent interview.

But this isn’t good enough. Any commentator can compare today’s tax levels with any other year. Mr Burke shouldn’t use a flawed appeal to authority to justify using 2002 as the comparison year. In fact, using 2002 is flawed, as is using 2011 — the GST had just been introduced, and the large Howard tax cuts hadn’t yet happened.

But most significantly, at the time around 2002 the ALP was arguing as much as they could that taxes were too high. It is pretty contradictory for the ALP to argue that taxes are now too low, comparing to a period when taxes were too high.

Instead of this nonsense, it is much better to compare today’s tax levels with an average over many years. This evens out the year-by-year biases, such as when taxes were below average in the middle of the GFC, and when they were above average after the introduction of the GST or during the mining boom.

And guess what? Correctly analysed, our tax levels currently are about equal to historical averages. The tax-to-GDP ratio is currently well above the 10-year average, and about equal to the 20-year, 30-year and 40-year averages (see details here).

This shouldn’t be a revelation to Mr Burke. The historical figures are available for all to see, and it doesn’t take a genius to figure out a comparison to a single year is flawed.

We should expect better of public debate than this.

Michael Potter is Research Fellow in the Economics Program at the Centre for Independent Studies.

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34 Responses to Guest Post: Michael Potter – Step away from the tax increases!

  1. Rabz

    Anyone who expects Tony Burke to be able to comment authoritatively on any matter of importance is deluding themselves.

    We’re talking about someone who made the claim in parliament that Israel was poisoning the water supply of the palestinians.

    So he’s just disseminating garbage by other means.

  2. Pedro

    “We should not expect better of public debate than this.” There fixed.

    Seriously, comparison to one or more other years is illustrative of something, but not much. The real discussion is about the benefits of one level of spending against another and about the various mixes of spending priorities and the taxes to fund that spending.

    Ross gittens is always asking for higher taxes. That is a perfectly valid policy preference. I want lower taxes. My only claim to conceptual superiority over gittens’ position is that A taxing B to give money to C is not a moral act on the part of A so I think that redistributive taxation is morally wrong. But I also think it an ugly necessity, like detaining kids trying to illegally immigrate on boats.

  3. Pyrmonter

    @ Rabz – Burke is a particularly noxious being; his career seems to be proceeding well among the remains of the ALP

  4. Zyconoclast

    Tony Burke wants higher taxes so he can go on more extravagant holidays with who ever happens to be his current office lady and all of someone else’s children.

  5. James

    Don’t worry. Turnbull will me-too it.

  6. Alex Davidson

    What annoys me is the way discussion about taxation is framed, where any debate about the immorality of it is declared over and resolved, and instead we are all reduced to arguing over the quantum.

    The best way to reduce taxation is to unceasingly draw attention to the way it breaches the most fundamental principles of justice – respect for property rights, contract, and consent – and instead operates on the basis of might is right. That is much harder to defend than comparisons of historical tax rates.

  7. Yes Alex, and I argue gun rights like that – 21 years ago. Its effin’ moot.

    You have to speak the same language to get in the debate.

  8. Robbo

    “We should expect better of public debate than this.”

    You aren’t going to get better public debate if Tony Burke and other morons like him are involved.

  9. Zulu Kilo Two Alpha

    Burke is a particularly noxious being; his career seems to be proceeding well among the remains of the ALP

    I remember his performance as Minister for Agriculture. Completely disinterested in the portfolio, no attempt to make himself aware of the issues facing agriculture, and all the while, the feeling that agriculture was “beneath him”

  10. Gab

    I remember his performance as Minister for Communications. Completely disinterested in the portfolio, no attempt to make himself aware of the issues facing communications, and all the while, the feeling that communications was “beneath him.

  11. mundi

    People also like to use 2002 because the budget was in surplus after that, so they can say 2002 was the last time the budget was “balanced”, implying (too idiots) that the surplus years never existed.

  12. johninoxley

    the only thing tony burke believes, is that he is not a complete moron. he pasted that post many years ago.

  13. James

    I remember his performance as Minister for Communications. Completely disinterested in the portfolio, no attempt to make himself aware of the issues facing communications, and all the while, the feeling that communications was “beneath him.

    +1

    and that is considered PM material

  14. Baldrick

    Any politician advocating for newer or higher taxes, of any persuasion, should immediately be placed in stocks and publicly bull-whipped.

  15. Gab

    Any politician* advocating for newer or higher taxes, of any persuasion, should immediately be placed in stocks and publicly bull-whipped.

    *Taobull, of course, is exempted.

  16. Lem

    *Taobull, of course, is exempted.

    Clearly he is not, no politician is.

    I am glad you have lost the ALP banner, but I do wish you would lose the glibness which has infected your posting. You seem to have developed a truly bad case of it over the last several months, and it does nothing to enhance your posting.

  17. Gab

    Oh dear, how ever will I recover from your admonishment, Lem? Oh, that’s right, I don’t give a toss.

  18. JC

    So why did Mr Burke choose 2002? Probably for two reasons: it shows taxes are too low; and it was the year used by Dr Ken Henry (former Secretary to the Treasury) in a recent interview.

    Just like Henry was going around the mining houses telling the CEO’s commodity prices were on a secular upwards run lasting a generation and he was wrong, he is now obviously wrong or lying about taxes being to too. Why doesn’t this arsehole just fuck off and go take care of wombats.

  19. notafan

    I wonder which one of Tony’s office staff put that together for him.
    The same one that sent the condolence letter to the family of the dead Syrian terrorist?

    A man that gets his inspirations from watching Harry Potter movies with his kids and repeats Gazan propaganda points is a drop kick of the first order.

  20. Lem

    Oh dear, how ever will I recover from your admonishment, Lem? Oh, that’s right, I don’t give a toss.

    Rightly said by one with an advanced case of galloping glibness, possibly terminal. I will watch carefully to see if there are any signs of recovery, but I fear you are a master of
    “that glib and oily art
    To speak and purpose not”.

  21. Bribiejohn

    What else should we expect from someone with the demeanour of an overgrown schoolboy such as Burke.

  22. gary

    I choose 1971-72 – before Whitlam stuffed everything. Tax 20.5% of GDP and spending 18.5% of GDP. Unemployment 2.5%.

  23. Zippy The Younger

    Tony Burko just another communist in a suit

  24. Pusnip

    I agree that Tony Burke is guilty of cherry picking, but the idea that we should expect current tax levels to sit around historical averages is also invalid.

    Two areas that typically require significant government intervention, namely income redistribution to address inequity and environmental protection, are both luxury goods that we can expect to take a bigger share of national incomes as those incomes rise. If historical tax levels were right for past times, they would probably be too low for modern times. There may be some factors going the other way (such as greater financial mobility meaning that high taxes locally might cause money to be shifted offsure), but we should not simplistically apply past tax takes to future needs.

  25. MareeS

    Tony Burke of the gravelly voice. He only speaks in order to listen to himself. Nobody else does, that’s for sure.
    More worrying for me is the inner Malcolm that is now clawing itself out from the chest of moderate Malcolm. 50% increase to GST, Gonski funding, hospitals, the Paris escapade, UN dalliances, eyes on my superannuation.

  26. Pusnip

    Yes, a few things to worry about MareeS but try to console yourself by remembering that all those things and much worse would have happened had Abbott not been dislodged, once Shorten took over.

  27. MareeS

    “Try to console yourself”

    Spare me, Pus, there is no consolation to be found in the game of politics. Arseholes come and then they go, Malcolm and Shorten included, and along comes another one. No care, no responsibility, but a bluddy good pension along the way.

    Speaking from the arms-length view of regional politics, Malcolm is everything we expected, having set our expectations exceptionally low.

  28. Entropy

    Two areas that typically require significant government intervention, namely income redistribution to address inequity and environmental protection, are both luxury goods that we can expect to take a bigger share of national incomes as those incomes rise.

    Pus, ifreal incomes rise, the real amount of taxes increase. That would help you use more OPM to do the things you want without also increasing the proportion of OPM you take.

  29. Dr Faustus

    Two areas that typically require significant government intervention, namely income redistribution to address inequity and environmental protection, are both luxury goods that we can expect to take a bigger share of national incomes as those incomes rise.

    A couple of smaller points to argue with, but generally true – and this also nicely encapsulates the dishonesty of the public debate (such as it is) on taxation.

    Taxation is the end point in the process of national spending, it’s where the money comes from to pay for the programs that our elected leaders conceive that we want, or need. However discussion on tax operates in isolation from the use to which tax income is put, as though it is a given that spending decisions by Federal and State governments are wise and wanted. It also avoids any discussion on productivity – that is, what can be done to increase national income and thus the funds available for government spending, rather than trimming off the perceived inequitable surplus.

    Sure this debate happens in a fragmented fashion during elections as the parties air their plans for the next 3-4 years. But this is less a discussion than an exercise in deception and ambush; the difficult and the unpopular is always hidden in the soaring rhetoric – and in the end the bastards we elect are willing to dime us out in an instant in their own political interest. Abbott did this, Turnbull appears to be doing it now – Burke and his ALP brethren are worse again because they come as corrupted, wholly-owned creatures of the union movement.

    The starting point for any honest discussion on taxes should be a discussion on what Australia is trying to achieve. If the National Objective turns out to be a socialist paradise of leaners, a gentle Green environment where nothing is disturbed, a magical place where the state picks up the full tote cost of life’s misfortunes – and the whole thing is to be funded by taking the property of people who work harder, take more risks, create more value – say it clearly.

    Be upfront, so we can all work out what part we want to play.

  30. john malpas

    Why encourage the thieves in parliament.
    Who pays for all this – me.
    When I came to Australia in 1961 the population was ten million or so.
    So who paid for all thr hospitals, prisons, roads etc etc for the current size of Australia? I did. Me and my mates.
    Time for us to get something back.

  31. notafan

    50% increase to GST.

    Bill is against that.
    Labor can cut welfare without the luvvies squealing. Gillard cut benefits to single parents and there was barely an oink.

  32. notafan

    Oh and Labor increased the age pension to 67 but when Hockey went to 70, oh boy.

  33. Aussieute

    KBP says it all … “if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”

    Never let a politician get between you and your money cos there will be little left

  34. JohnA

    Pusnip #1845302, posted on November 3, 2015 at 12:34 am

    I agree that Tony Burke is guilty of cherry picking, but the idea that we should expect current tax levels to sit around historical averages is also invalid.

    Two areas that typically require significant government intervention, namely income redistribution to address inequity and environmental protection, are both luxury goods that we can expect to take a bigger share of national incomes as those incomes rise. If historical tax levels were right for past times, they would probably be too low for modern times. There may be some factors going the other way (such as greater financial mobility meaning that high taxes locally might cause money to be shifted offsure [sic]), but we should not simplistically apply past tax takes to future needs.

    Pus your argument cuts both ways with equal validity.

    Therefore we should go with Dr Faustus, and argue out what it is that we really want.

    You argue for more government intervention, and more forcing people to have only a certain amount of money (to achieve an impossible dream of arithmetic equality), plus environmental protection – as if Gaia/the earth is not big enough and tough enough to strike back at wee humanity.

    I and a number of others here would argue for a helluva lot less government involvement in our financial affairs – such that for instance health, education and welfare spending be reduced to NIL. Then we could concentrate on funding lora norda, in all jurisdictions: criminal, civil, corporate, union, government. The target would be that any citizen could bring his case to a competent court within 24 hours to be heard, not merely mentioned.

    Then there might be enough money and brain power to apply to the road toll, the war on drugs (capital punishment for inflicting a death penalty on users), and freedom of speech, instead of manufactured human rights to bottled water, annual overseas holidays and leave loadings, and endless appeals against Immigration decisions about those who are found to be not genuine refugees.

    So man up, you socialist big spender, and argue your case properly!

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