Budget 2019 - A Different Perspective

As they say 'Another May, Another Budget!' Except it's April. Luckily though, it's not April Fool's Day. Last night Josh Frydenberg delivered his first Budget since becoming Treasurer. Given the election is likely to be in less than 6 weeks time it will be of no surprise for people to find out it was heavy in handouts.

This is the part where Budget pieces usually list 'What's In It For You?' - generally a comprehensive list of where you fit - Single, Couple, Retiree? - followed by what you can expect to receive by way of tax cut or new service specific to your individual circumstances.

We're a little bit different here at Integribooks. We're always looking at alternatives. How can we do things differently to achieve a better outcome? How do we compare with the best in the industry? How does our tax system and public services compare with the rest of the world? This is what our Budget needs to be judged by: The rest of the world.

While its forecasting a small surplus in 2019/20, this is essentially a stimulus budget. Partly because there is an election in 6 weeks, partly because the economic conditions have actually flattened over the recent term. Wages growth is still low, underemployment high. The new ‘gig economy’ would appear to be in full swing. Technology is disrupting things. What were once local jobs are now streamed over the internet, with revenue going directly to a few multinational companies. Did you ever use to hire a movie on Saturday night? That’s gone. Catch a cab in the city? Commission for that is now going offshore. Put an advertisement in your local paper? That’s now online. These examples are all represented in the changing workforce and are partly to blame for the underemployment we are experiencing. This budget will see the government target additional funding towards TAFE. This is a good thing if we are to retrain our population for jobs as they exist now and into the future.

Frydenberg proclaimed 'We're back in the black'! While we aren’t in the fact checking business, the first statement Frydenberg made was simply not correct. There was a budget deficit recorded for 2018/19. Frydenberg also suggested the solution was 'not to tax more'. This lends itself to the question - what is a good level of taxation? How do we compare with the rest of the world?

As a percentage of GDP, Australia is one of the least taxing nations in the OECD. Currently sitting around 7th last in the scale of tax to GDP rates, we actually don’t have much left to cut.

Australia Tax to GDP Ratio - Source: Budget 2019

2011/12 - 20.8%

2012/13 - 21.3%

2013/14 - 21.8%

2014/15 - 21.8%

2015/16 - 21.8%

2016/17 - 21.5%

2017/18 - 22.6%

2018/19 - 23.1%

2019/20 - 23.3%

In addition, despite what the Treasurer might assert, our tax to GDP ratio is actually going up at the moment. This may not completely be a bad thing, as generally taxation intake will increase along with good economic growth. It's a part of the natural automatic stabilizers in the economy. These kind of nuanced arguments don't make for good 30 second television spots though.

We're less interested in the level of taxation but whether this level gives us bang for our buck in the quality of government services provided. What does this mean when we compare the quality of our government services with other nations?

Countries in Scandinavia are sitting at around 40% tax to GDP ratio. Statistics would suggest this is also represented in their quality of government services. The most recent happiness index report which takes into account a variety of factors including real GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity and perceptions of corruption have them at the top of the pile.

These are the top 10:

1) Finland

2) Denmark

3) Norway

4) Iceland

5) The Netherlands

6) Switzerland

7) Sweden

8) New Zealand

9) Canada

10) Austria

This year, Australia dropped into 11th place.

Of course we may be able to drive quality services with a lower tax ratio but surely we need to have that conversation. The statistics suggest this is not currently occurring.

So, is the answer really to tax less and not more?

Thanks for reading,

Gavin Mettam

Integribooks