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Misrepresentations

February 16th, 2005

In an interesting tribute to the impact of blogs, the latest issue Centre for Independent Studies magazine Policy includes a lengthy article by Sinclair Davidson, entitled Taxation with Misrepresentation (PDF), which appears to be a response to this blog post, criticising an earlier article in the same journal. If only all the posts here attracted a similar response.

At this stage, it doesn’t appear that the article adds much to the discussion that took place at the time. For example, Davidson has a lengthy defence of the morality of tax avoidance and of Garfield Barwick’s excellence as a judge, but doesn’t respond at all to the substantive point that his figures on taxable incomes are distorted by the effects of tax avoidance/minimisation/effective planning. Call it what you will, the game is about making your taxable income less than your actual income.

One interesting claim is that 60 per cent of households get more in welfare benefits (including family payments) than they pay in tax. Davidson refers to his own unpublished calculations as the basis for this claim. I’ll wait until I’ve seen a bit more detail before responding.

Anyway, as I say, it’s good to see that blogs are having an impact, at least to the point of provoking a reaction.

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  1. Steve Edwards
    February 16th, 2005 at 22:56 | #1

    If we were to turn this argument around, we’d have to conclude that John Quiggin believes people ought to maximise their taxable income. I do not know anybody who maximises their taxable income, but perhaps I keep “immoral” company.

    On the other hand, previously knowing quite a few people on the lower end of the income spectrum, particularly undergraduates, I can testify that tax avoidance and evasion are rife. It is not clear to what extent this distorts the figures on income/distribution.

  2. February 17th, 2005 at 01:24 | #2

    I don’t think Q is arguing the morality of tax minimisation… he’s just pointing out that tax stats don’t record income, they record taxable income (which is intentionally minimised vis-a-vis real income).

    My complain about Q is that he called this post “misrepresentation” … which is clearly a cheap shot at Davidson, and one that doesn’t seem called for. Especially as the post itself is all about fostering debate.

  3. John Quiggin
    February 17th, 2005 at 06:44 | #3

    John, the title of Davidson’s article is “Taxation with Misrepresentation”.

  4. February 17th, 2005 at 08:33 | #4

    Given that this country has a buggered gini coefficient and the top 20% got 48.5% and the bottom 20% got 4% of income there is a fair bit of equalisation that needs to happen. Given in this wonderful economy only the top quintile has had wage increases above the CPI for food perhaps Sinclair could publish the earnings and wealth distribution in Australia, then we can make a judgment on taxes after that.

  5. ab
    February 17th, 2005 at 10:15 | #5

    If the title of the paper is ‘Taxation with Misrepresentation’, and your heading is a reference to that, why have you omitted the ‘Taxation with’ and added an ‘s’?

    ab

  6. February 17th, 2005 at 10:49 | #6

    A lambs arse is attached to something that goes baa. Why have you removed a letter and reversed the remainder to get your name?

  7. Katz
    February 17th, 2005 at 12:02 | #7

    The inaccuracy, not to mention mendacity of this Davidson quote taken from the above-cited monograph:

    “The revenue lobby has propagated a range of myths over the years in order to sustain Australia’s high tax regime. The ï¬?rst myth is an absolute denial: that Australia is a ‘low-tax’ economy. Comparisons with other regional economies, and even the OECD, however, show this argument to be false.”

    is demonstrated by reference to Chart 2 in the following reference:

    http://www.cis.org.au/Publications/policymonographs/pm67.pdf

    Peter Burn, author of this monograph is also a proponent of the thesis that Australiais not a low tax paying country. He claims that Australia only appears to be a low-taxing country in relation to a “Eurocentric” view of normality. Rather more “normal” Burns implies, is to compare ourselves with our Asia-Pacific neighbours.

    But as a viewing of the chart demonstrates (pre-Bush crony giveaway), Australia’s total tax take was only approx. 5% higher than that of the US. And, of course, unlike the US, Australian governments are actually running surpluses. (Assorted RWDBs lurking in the blogosphere might like to consider the political effects of Howard giving that surplus money back to the original taxpayers, rather than to the infinitely bribable and newly fecund members of GenX who are getting it at present.)

    It cannot be denied that Australians pay a relatively high level of income tax, but it may be argued that this is a relatively modest ransom for the comfortable to pay to keep GenX well-shod and pregnant.

  8. joe2
    February 17th, 2005 at 12:34 | #8

    The Centre of Independent Studies give the game away in their very title. A bit like The Department of Peace, devoted to war.

    Maybe ,closer to home, a “liberal” Party that is as about as right-wing as you can get.

    When they talk economic “reform”, of any kind, we should be all very scared. Still,it’s nice to know they are keeping an eye on things. Sadly, I doubt they will learn anything. They can’t see past the harbour view.

  9. wilful
    February 17th, 2005 at 12:44 | #9

    Katz, I’m sorry, but ” the infinitely bribable and newly fecund members of GenX ”

    What? Are you seriously suggesting that Howard’s largess is only directed towards breeding families? The oldies get none of his pork-barrellling? I don’t think so. Remember the direct cash bribes directed at retirees before the election?

  10. Katz
    February 17th, 2005 at 12:52 | #10

    Not at all wilful. I agree with Howard’s probable calculation: “oldies are too schlerotic to change their votes.”

    I’m flattered that you assume seriousness on my part. I didn’t intend, however, to provide a complete account of Howard’s bribes. I was merely sketching a response to Davidson and Burn.

  11. Atticus
    February 17th, 2005 at 13:17 | #11

    I hear people like the denizens of the CIS continually decrying the “myth” that Australia is a low tax country, yet the OECD (hardly a hotbed of left wing opinion) contnually produces these figures showing us to have one of the lowest tax takes as a proportion of GDP of any nation in the world. What gives? I realise that Australi has far fewer indirect and property taxes, and a consequently higher progressive income tax, than most others. I realise that explains the perceptions among the mobile young that they’re over taxed at home. What I don’t understand is how the low tax statement is a “myth” or a “fantassy”.

    Is there something dodgy about the OECD figures?

    The closest I’ve seen to what seems to be an honest attempt to confront the OECD numbers is the one mentioned above about having a “Eurocentric” scale of comparison. But surely we have to compare ourselves to nations at similar levels of development to our own. In the Asia-Pacifi, that means Japan – and there are a whole lot of reasons why that just isn’t a fair comaprison. Hell, as pointed out above, prior to the Bush tax cuts, we were not much more taxed than the US, on teh OECD figures.

    What am I missing? Can someone please point me to any *reasoned* justification for the right’s denial of the statement that Australia is a low tax country? Surely they can’t just be full of bullsh*t??

  12. February 17th, 2005 at 15:40 | #12

    The dodgiest part is claiming that taxes compare to taxes, country to country.

    But Australia has several taxing levels, and things that aren’t classified as taxes but as charges (and in some cases regulations compel compliance costs that compare with taxes in other times or places).

    All this leads to poor comparabilty, particularly if you claim that “only” federal taxes for federal consolidated revenue are taxes. That way GST doesn’t count, payroll tax doesn’t count, environmental compliance costs don’t count, and so on. While there is room for honest disagreement over what should and shouldn’t count, for myself I feel that Australi’s taxes are understated for most relevant purposes.

  13. Atticus
    February 17th, 2005 at 16:25 | #13

    Yet this would also mean that US taxes are understated. They have state *and* federal income taxes. Indeed, my understanding is that there’s horrendous duplication between federal, state and local taxes all over the US. Moreover, the US system of employers paying health insurance isn’t counted, yet it’s pretty analogous to the health insurance taxes I understand are imposed by European countries (and also a hell of a lot less efficient – but that’s another debate).

  14. Andrew Norton
    February 17th, 2005 at 16:26 | #14

    I have some sympathy for the view that we should not benchmark ourselves against other countries for tax and spend purposes; we can make our own decisions about the right mix.

    But while the left suggest that we should have higher taxes partly because other countries do, this is a game that tax sceptics need to play. The point in the CIS publications has been that the OECD figures are heavily influence by high-tax European countries, whereas if we look at countries with which Australia is more closely integrated in Asia and with the US then Australia is not low tax.

  15. stephen bartos
    February 17th, 2005 at 16:45 | #15

    when I last looked at the OECD figures, they were based on government finance statistics standards, and so do include indirect taxes (eg GST). comparability is however difficult. for example, is the singaporean central provident fund a tax? (according to the official stats it isn’t – but one could argue equally that because it is compulsory and the fund controlled by government it is a tax). ie to some extent governments have an influence over what is or is not classified as a tax in their official statistics. to take another case, there is a fine dividing line between tax and non-tax revenue (fees, fines, charges etc.) and there is frequently debate about new charges as to whether they are taxes or user charges (I won’t bore you with how these debates are resolved; in summary, governments prefer charges to new taxes, especially if they have promised “no new taxes”). On the reliability of the OECD statistics, it is clear that Australia is a low tax country compared with the mean of country tax rates; there is an argument that the averages should be weighted by population, which gives greater weight to the US (large population, lower tax rate) and so brings down the average – but even when this is done, Australia comes out at a middle taxer, certainly not a high tax country. If we compare with neighbouring developing countries – Indonesia, Malaysia etc. – we come out as high tax, but most commenters recognise that such a comparison is not really valid and similar levels of GDP/capita are needed for this sort of comparative work.

  16. Katz
    February 17th, 2005 at 16:52 | #16

    To point out the speciousness of the CIS argument is not synonymous with arguing for high taxes. There are all sorts of rationales for altering tax rates up and down. Some of them are logical.

    It is correct that our most important trade partners happen not to be among the European High Tax countries. But so what? This seems to argue against the implied assertion that differential rates of tax harm international trade. Think of the corollary: if Australia raised its tax rates, would that result in increased trade with high tax countries relative to low-tax countries?

    Atticus, I take it that the OECD figures aggregate all levels of taxation and you are correct that US employer-funded health insurance is not counted. And neither it should be because it isn’t a tax, merely a public-policy-driven misallocation of funds into a partial, bloated and exploitative private system.

    PML, every country has statutory compliance charges, etc. They may have a marginal effect on effective tax rates.

  17. Talisker
    February 17th, 2005 at 19:50 | #17

    “speciousness of the CIS argument”. What on earth is that supposed to mean Katz? Have you read the stuff? I think it’s on their website. Deal with the arguments please. Ditto Atticus.

  18. Katz
    February 17th, 2005 at 20:59 | #18

    Talisker, I read it. I cited it. I quoted it.

    The upward scrolling button is in the top right corner of most browsers. Using it becomes quite intuitive after a bit of practice.

    Speciousness can take several forms. In the case of the CIS argument about Australia’s status as a taxing entity, false dichotomies and inconsistent criteria are prominent among favoured methods.

  19. February 18th, 2005 at 15:13 | #19

    Katz, I wasn’t disputing that there are other compulsions with financial consequences, just pointing out that it puts a lot more noise in any attempt at comparison. That particular applies if we look at historical comparisons, since in past ages much fund raising wasn’t formal taxation but commutation of in kind obligations.

    (That’s not just academic and obsolete without modern consequences, either. Commutation of tithes under the mandate made life a lot easier for Zionist settlers at the expense of locals.)

  20. derrida derider
    February 18th, 2005 at 20:45 | #20

    As someone who has had some involvement in compilation of the Australian tax and benefit figures for the OECD, I can certainly agree that drawing the line between taxes and charges, fees, etc is very hard (FWIW, the line is also very blurred on the benefit side). But serious effort is made to compare like with like. Insofar as it’s unsuccessful, it’s not obvious that this flatters Australia – Europe and the US have plenty of quasi-taxes too. And of course the figures do try to capture all levels of government.

    But I agree these comparisons don’t mean much for policy – we should decide how big our government should be for ourselves. Most of the arguments to ‘international competitiveness’ are deeply specious.

  21. gordon
    February 19th, 2005 at 17:33 | #21

    I don’t know about the “60 percent of households, but the following quote from the Senate Inquiry “A hand up not a hand out: Renewing the fight against poverty – Report on poverty and financial hardship” by the Senate Committee on Community Affairs (March 2004) might be informative: “low income
    households are net beneficiaries from these indirect benefits and taxes, with such
    indirect benefits and taxes increasing final income by 70 per cent relative to
    disposable income. For high income households, indirect taxes paid cancel out
    indirect benefits received, leaving their disposable and final income at the same level.” Of course, direct cash benefits and taxes should also be evaluated (and maybe are somewhere else in the report), but I don’t have time to comb the report right now. The report is available online at http://www.aph.gov.au/senate/committee/clac_ctte/completed_inquiries/2002-04.htm

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