Wednesday, April 28, 2010

Income tax at long-time low

THE income tax paid by Australians has plunged to its lowest level in almost 40 years as a share of GDP, as tax cuts and the global financial crisis ploughed a big hole in government revenue.

The Bureau of Statistics says Australians paid almost $10 billion less tax in 2008-09 as the crisis hit, sending the total tax take to its lowest share of GDP for 15 years.

Total tax revenue of federal, state and local governments fell for the first time since the last recession, slumping from $348.3 billion to $338.9 billion. Most of the fall was in company tax and stamp duties on property sales. But for most taxpayers, the biggest saving was in income tax.

The Howard government's tax cuts, while favouring those at the top end, had already slashed income tax revenue from 12.1 per cent of GDP to 10.8 per cent over the previous three years.
Then in 2008-09, more tax cuts combined with the economic slump to send it plunging to 10.1 per cent of GDP — the lowest level since Gough Whitlam became prime minister in 1972.

Relative to GDP, that fall saved us $25 billion in tax in the past financial year. Of that, $9 billion came in 2008-09 alone, part of it from the 2007 election tax cuts and part from tax revenue falling as people lost jobs or income.

The total tax take of all governments sank from 29.5 per cent of GDP in 2007-08 to 26.9 per cent a year later. While most of that was unintended, it put a cushion of $32.5 billion under the economy's fall.

Overall, the bureau reports that federal, state and local governments ran a combined deficit of $31 billion in cash terms, although just $21 billion on the accrual measure used by Victoria and most governments.

A year earlier, the combined surplus was $20 billion in cash terms and $33 billion on the accrual measure — implying a turnaround of more than $50 billion to cushion the economy in 2008-09.

More than 90 per cent of that cushion was provided by the Commonwealth, which saw its bottom line on the accruals measure reverse from a $25 billion surplus to a $25 billion deficit.
The states collectively remained in surplus, but by just $193 million.