Weak tax take threatens services: Treasury head

Australians will have to either pay more tax or expect poorer government services, the head of the Treasury has warned.

Australians will have to either pay more tax or expect poorer government services, the head of the Treasury has warned.

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, around 5 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". Right 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, said.

Its propriety measure of "general government debt" representing the amount owed by all levels of government came in at 26 per cent of gross domestic product. This was below Norway's and way below that of nations such as the United States which had general government debt of 100 per cent of GDP.

Dr Parkinson said Australia's weak tax take was colliding with growing expectations of government, the rapidly rising costs of healthcare and the ageing population. "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."

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles