Following is a letter published in today's AFR referring to Treasurer Peter Costello's incorrect claim that the Coalition has reduced the burden of taxation. This is not the first occasion on which this claim has been made nor the first occasion on which I have pointed out the error. Unfortunately, the Prime Minister and the Minister of Finance are also guilty of what is tantamount to a breach of the Charter of Budget Honesty. A detailed analysis/explanation is provided in the attached file containing an article published in the current edition of the Centre for Independent Studies Journal "Policy".



We bear highest tax in our history



Australian Financial Review

18th October 2006


Following the publication on October 11 by the Organisation for Economic Cooperation and Development of tax revenue data for 2005 for member countries, Treasurer Peter Costello issued a press release claiming the federal government had reduced its taxes from 23.1 per cent of GDP in 1996-97 to 21.0 per cent in 2004-05.


This claim has no substantive basis: the two figures are not comparable because the second excludes the GST and the first includes taxes the federal government was able to reduce or eliminate by (largely) eliminating general revenue grants to the states and paying them the GST proceeds instead.


the Australian Bureau of Statistics treatment of the GST as a federal tax, the total of such federal taxes increased between 1996-97 and 2004-05 from 22.8 per cent to 25.7 per cent. That large increase in federal taxes explains why the table accompanying the OECD release shows that between 1995 and 2004 total Australian taxes increased by 2.4 percentage points of GDP (from 28.8 per cent to 31.2 per cent of GDP) whereas the average OECD tax burden increased by only 0.8 percentage point.


True, the new federal arrangements with the states allowed them to reduce some inefficient state taxes by about one percentage point of GDP. But the fact remains that the present coalition is responsible for Australians now bearing the highest tax burden in our history.