Treasury chief pulls no punches
Dr Martin Parkinson told a post-budget function in Sydney the share of the economy devoted to tax had suffered its most dramatic slide since the 1950s.
"From its pre-crisis level of 23.7 per cent, the tax-to-GDP ratio fell to 20.1 per cent in 2010-11," he said. "This reflects both successive large cuts to personal income tax rates and a fundamental change in the relationship between the nominal economy and tax receipts."
Weak tax collections were set to continue. Mining companies had become more economically important and paid a low proportion of their profits in tax, about five to 10 percentage points less than for the corporate sector as a whole.
"Just to be clear, this is not a judgment about what the effective tax rate paid by mining companies should be," Dr Parkinson told the business economists. "It is simply a statement of fact."
Non-mining companies would soon need to take the place of miners in driving economic growth, but there was a risk the transition would "not be seamless". Now, their growth was "not much bigger than the recession of the early 1990s".
Dr Parkinson's assessment came as the Fitch ratings agency endorsed Australia's AAA credit rating, describing the nation's public finances as "very strong".
"We view Australia's public financial position as a source of strength," the firm's global director of sovereign ratings, Art Woo, told investors.
Dr Parkinson said Australia's weak tax take was colliding with growing expectations of government and the rapidly rising costs of healthcare and the ageing population. Reforms to improve productivity would help to some extent and would be needed whichever party won the election.
"We have a big gap between what the community demands of government and what it is prepared to pay," he said. "We have to think about savings or new sources of revenue.
"I am not saying we have to find extra sources of tax. But we cannot just keep promising to spend more and more."
He would not say whether he would support an increase in GST.
Frequently Asked Questions about this Article…
Dr Martin Parkinson warned that Australia's tax take has fallen sharply and is colliding with rising expectations of government spending and rapidly increasing healthcare and ageing-related costs. With a lower share of the economy going to tax, he said the country must consider savings or new revenue sources or face cuts to services.
Dr Parkinson said the tax-to-GDP ratio fell from a pre-crisis level of 23.7% to 20.1% in 2010–11, a drop he described as the most dramatic slide since the 1950s.
The Treasury chief noted that mining companies have become a larger part of the economy but pay a lower proportion of their profits in tax—about five to ten percentage points less than the corporate sector overall—contributing to weaker tax receipts going forward.
No. He explicitly said his comments were a statement of fact about the share of taxes paid by mining firms, not a judgment about what their effective tax rate should be.
Dr Parkinson said non-mining companies will need to take the place of miners in driving growth, but warned the transition may "not be seamless". He also noted current growth outside mining was not much stronger than the recession of the early 1990s.
Despite the weak tax take, Fitch Ratings endorsed Australia's AAA credit rating and described the nation's public finances as "very strong," with Art Woo of Fitch calling Australia’s public financial position a source of strength.
He suggested productivity-improving reforms would help and are needed regardless of which party wins government. He said the country must consider savings or new revenue sources, while cautioning against simply promising more spending without funding it.
No. He declined to say whether he would support an increase in the GST.
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