Identity crisis (repost from 2014)
When I posted the following piece two years ago, I didn’t suppose it would be enough to kill the absurd idea that “most Australians pay no net tax”. But, given its obvious kinship with Mitt Romney’s disastrous “47 per cent” catchphrase, I felt sure that hardheads on the political right would kill it off before it lined them up on the losing side of a class war. Not for the first time, I was wrong. So, here’s a reprint.
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, 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. Romney wasn’t silly enough to push this line in public. He got caught using it at a donors meeting, when someone secretly filmed him.
fn2. 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.