In the latest issue of Gerard Henderson’s Sydney Institute Quarterly, Adam Creighton, economics correspondent at the Oz, “explains why most Australians pay no net tax”. That’s a striking conclusion, so I checked it out. Creighton has discovered that most Australians get about as much back in transfer payments and public services as they pay in taxation. The poor get a bit more, and the rich a bit less.
To save Creighton some work in future, can I suggest he consider the budget identity constraint “Expenditure = Income”. Since the government spends on services and transfer payments roughly the same amount as it raises in tax revenue[1], it’s obvious that, for the average Australian the same identity must hold, with income renamed as “tax paid” and expenditure as “transfer payments and public services”.
Next up: Why there is no net travel into the CBD
fn1. Taking account of the seignorage from inflation, returns on assets, intertemporal transfers through debt etc, this rough equality becomes an identity. Please, no arguments about deficits, and especially about MMT. The point of this post is a really simple, and doesn’t need this kind of complication.
John Quiggin 
When the Australian people are scratching their heads over why your boss got $800billion from their tax money-box a little handwaving distraction is hardly surprising.
Tax, it’s complicated.
Must stop channelling Barnaby Joyce.
$800million
I’ve just realised that as I have no net expenditure (as my expenditure equals my income), and as we all live to spend, I must therefore be dead.
“Please, no arguments about deficits, and especially about MMT. The point of this post is a really simple, and doesn’t need this kind of complication.” – J.Q.
Don’t worry, MMT is so last year. Marxism is making a revival now…among real thinkers. 😉
Could it be that this study is an attempt to tactically counter neoliberal dogmas and TeaParty logic?
I believe that this study is preventing apearance of Australian TeaParty since it shows that tax is not a burden to people but a way to cooperate and coordinate on a larger scale then individual or a small community. And that such service is esential for large size community and it is not a burden to pay for it. You get back the value that you paid in taxes.
Fter reading the article i changed the thinking.
This article is acctually more about Rich as Pinata and rising progressivness of the taxes, both on the false premisses.
Claiming that taxes are becoming more progressive because midle class is paying more and more in taxes which is due to inflation while tax threshold is fixed is ridiculus. That makes taxes less progressive. Progressive is if top 1% is taxed higher then those just bellow it, not when highest bracket is catching higher numbers that are from the bottom of that tax bracket.
Rich are not pinata because they bring most money into revenue, first they are lucky ones that enjoy very random distribution of income, not due to their worth but due to the system randomness that can have only specific number of places for such position without encroaching on welfare of others. It is only by chance that these rich 1% got into such limited place. The system is highly unjust and progressive taxation is only attempting to correct such injustice of random distribution of value.
This article is more of whining by rich then benefits of government.
It would seem that Adam Creighton uses an algorithm or cut and paste device to join various pieces of data into a sentence eg
So it would appear that an av household of *2.6 persons earns $88.9K while picking up old age, disability, child related and unemployment benefits. Hard work!
*ABS define average household as 2.6 persons, down from 3.1 in 1976.
It seems that the Henderson ‘article’ was lifted straight from the Oz, without acknowledgement!
In another piece Creighton says
Just in case anybody could be bothered to look up the stats (globally Aust does well in employment to population ratio) he counters with
“Identity crisis”. Indeed. And who said dumbing down hasn’t happened?
Mr Creighton has done us a favour nevertheless. He asserts that the idea of taxation being wasteful to most of us is not supported by evidence.
I missed reading JQ’s posts during the past few weeks. The headings are little treasures to start with.
Wasnt the point of the article that taxation is distributed progressively in Australia. Even with the Expenditure = Income, it would seem that the distribution is skewed (correctly) to favour those on lower incomes.
@rog
I look forward to the Oz’s campaign to repeal the Factory Acts in the upcoming repeal day. It is obvious that the only way we can increase this ratio of workers to dependents is to return children to their rightful place in the cotton mills.
@David
I don’t read Creighton but I’m going to guess that the point of the article is about tax and expenditure: since we get out what we put in, we might as well pay less tax and get less services.
Apart from redistribution effects, this ignores the fact that it is individuals who pay tax but it is families who get the bulk of social security payments, that government provides some things to all collectively (defence, ASIO, foreign policy etc), that we collectively spread risks by paying taxes and have government provide stuff (most health spending, emergency services), that government provision is more efficient than some private alternatives (public transport into CBDs rather than drive and park), and that government provides services which society has deemed should be available to all for little or no charge (most education).
@Uncle Milton
… tax and expenditure churning …
Uncle M, I think he really believes he has found something different from the obvious identity. The theme is “the high income earners are the only people who really pay tax”. Reminiscent of Romney and the 47 per cent, only in a more extreme form.
@John Quiggin
Assume his premise is right and that high income earners are the only people who personally get out significantly less than they put in, surely the response is: so what?
Of course some people would say that high income earners get a very good deal from government (or the state generally) because it provides them with the rules of the game, skewed to their interests, that allows them to become high income earners in the first place.
@Uncle Milton
…and with free income support, healthcare and education for society’s poor and needy it means those rich people do not have to live surrounded by poor, sick, stupid and desperate people who might make their lives less pleasant.
Even the greediest of them should get that, but they don’t seem to.
“Of course some people would say that high income earners get a very good deal from government (or the state generally) because it provides them with the rules of the game, skewed to their interests, that allows them to become high income earners in the first place.”
Indeed, Uncle Milton. My worry is the dumbing down process has been so successful that the set of people, who would see this and therefore say it, is shrinking rapidly.
Thanks Uncle Milton. So Creighton skews the data to include those collective benefits paid for by government So the real question is should these collective benefits be included in the calculations of individuals net position after taxes paid and benefits received?
It is not really a revelation that those who pay the most tax and receive the lowest benefits (generally) provide the highest net contribution (in dollar terms). Creighton doesnt answer the question if the current levels of distribution are fair enough.
Megan, in fairness, isnt it worthwhile noting that the rich do fund a large portion of income support, healthcare and education? (and rightly so) As much as they are a fun target that is.
@David
As you say – so they should.
But I’m not sure that it is”worthwhile noting”, really. Maybe it is.
@Uncle Milton
“Assume his premise is right and that high income earners are the only people who personally get out significantly less than they put in, surely the response is: so what?”
More correct response could be: “But they get much more from the market then they put in”
The market gives them much more then they put in so, if government takes much more then give them that is a good thing and works positively on the sense of fairness of the system.
I just realised how clever the title of this post is 🙂
Unaccustomed as I am to agreeing with anything from the Sydney Institute, I would like to point out that Creighton has been misunderstood:
“For everyone else, the value of social security in cash and kind exceed taxes paid.”
The relevant identity should therefore be disaggregated as Government revenue = Expenditure on direct benefits in cash and kind + Expenditure on general benefits like defence. Since Creighton is only talking about one component of the identity, I don’t think he is suffering from an identity crisis in this regard.
Very high income earners (capitalists) get their income from a “tax” on the workers’ labour. The surplus value of labour is taken by the capitalist and put in his own pocket as profit. This creates large inequities which the welfare state must tax back and redistribute (or face other problems). People object to the churning aspect of this economy and there is a simple solution. Worker ownership of production (keeping profits with the workers) would obviate a proportion of the need for such churning.
Worker cooperatives (worker ownership and management) are the obvious direction to take. Such a path to worker socialism could be gradualist. It would progressively replace corporate ownership with state ownership of natural monopolies (re-nationalisation). Other enterprises and corporations would be progressively shifted to worker cooperative ownership meaning ownership and management by the workers in the enterprise. Personal ownership of goods, chattels and real estate for personal use would continue.
Some individual firms I have looked at (cooperative bakeries in California) show figures which indicate that cooperative bakery workers in the US get about double to treble the personal income of a person working for a capitalist bakery. This indicates the size of the “take” of the capitalist.
The worker cooperative concept is not radical. It is already very common in our society. Every family business and partnership business, with equal or substantially equal partnership and without subsiduary employees, is in fact a co-operative. The innovation required regards the addition of extra permanent workers when expansion is required. The legal apparatus and cultural expectations need to be changed such that the new worker is added as a co-operative member not as an employee.
If you are interested in the distribution of taxes and spending I wrote about this here http://inside.org.au/who-gets-what-who-pays-for-it-the-welfare-state-debate-revisited/
@RD
I don’t think the exclusion of defence really makes a difference here. It just shows his conceptual confusion.
And, of course, the general predilection of the right to privilege armaments over all other kinds of publlcly provided goods and services.
As the famous Brisbane Line debate showed, there’s no reason to think of defence as a public good at the national level. Perfectly possible to defend some areas and abandon others.
Shock, horror…
Workers receive no net wage.
After paying for all their consumption it appears that workers loose as much , if not more, than they receive in wages.
Geez, I hope the Fair Work boffins take note.
Great post! Enjoyed! Silly Adam but this nonsense suits (and is presumably driven by) his ideological priors.
@Uncle Milton #17
It’s misleading of Creighton to conclude that most households pay no net tax, as most will believe he is using the common national accounting measure of NTT, Net Taxes and Transfers, meant to show financial transfers to and from government. He’s totally changed it to include his own invented monetised aggregate “social security in kind – “free” schools, hospitals, public transport, etc”.
When George Megalogenis did some analysis of NTT a few years ago (“The Tax Free Middle Class” the Australian, Sept 20, 2008), he said 42.2% of households were net financial beneficiaries, up from 38% in 1996, and trending to 50% in 2020. Creighton doesn’t try to analyse or update this – maybe he won’t get the “most households” conclusion?
Another bit of silliness is the claim that people don’t know they’re paying GST because total price must be quoted. Information transparency was the policy goal here, and no sign after 13 year that people don’t have a good grasp of this, with GST usually itemised on bills. Is he a rational economist or not? Does he ever look at his bills?
He should be severely punished for his mischief-making. I suggest a beer with Gerard is for a first offence, and two beers with Gerard if he does it again.
@Peter Whiteford #25
Plenty of meat in this analysis. Just to cherry pick a data comparison which stood out for me, the highest household quintile received 45 per cent of private income and paid 46.5 per cent of all taxes paid (direct and indirect); they might complain about not getting enough back, but the claim they are over-taxed looks weak.
Peter’s 10 Feb 2014 article at Inside Story “Is Australia’s welfare system unsustainable?” is also content-rich and germane to this debate.
Once upon a time, when I was at school, we envisaged a future where our biggest problem would be finding something to do with all our spare time. Automation would mean that there wasn’t much work.
But now, even though we do everything a lot more efficiently, and some of us still work very hard, we apparently can’t afford a welfare system for those whose labour we don’t need.
No doubt this makes sense to someone. But not me.