Better use of tax take needed

There are more myths surrounding corporate taxation than personal taxation.  In years gone by many used to argue that the "rich" didn't pay their fair share of taxation.  In a series of articles published in 2004, I demonstrated that argument was false.

In those days the top 25 per cent of taxpayers paid 64 per cent of personal net income tax -- that figure has since increased to 67.4 per cent.

Corporate tax is in a similar position.  A very small number of very large companies bear the Australian corporate tax burden.  Tax Office data reveals that a mere 4105 companies, about 0.5 per cent of the total number eligible to pay corporate tax, paid 76.3 per cent of that tax in 2007-08 -- up from 74 per cent the previous year.  At 25.8 per cent, the effective corporate tax rate for these large taxpayers is close to the statutory rate of 30 per cent.  In other words, the corporate tax burden is very real.  It is commonplace to argue that big companies pay no tax, but the fact is most companies pay no tax.  Those that do tend to be big and tend to pay the lion's share.  The corporate tax is a tax on profit;  the 0.5 per cent that paid 76.3 per cent of the corporate tax earned 72.5 per cent of the taxable income.  The corporate tax system works well and works as it is designed to work.

The notion that companies should pay more tax is just nonsense.  The corporate tax take as a percentage of gross domestic product is already very high, by the Organisation for Economic Co-operation and Development's standards.

Furthermore, government revenue as a percentage of GDP is close to the long -term average revenue.  Budget deficits are due to increased government spending.  Rather than companies and individuals paying more tax, the government should cut spending.  As the latest Intergeneralional Report made clear, Australian public finance is on an unsustainable path.  Government is spending beyond our means to pay.  Every dollar that is taxed reduces the productive capacity of the economy to provide goods and services.

Rather than demonising those sections of civil society who already pay tax, the revenue lobby should consider better use of the existing tax take.  The government needs to live within the constraints of a productive and growing economy.  Bumps in the road, such as the recent financial crisis, might lead to temporary and small declines in revenue, but they should not be excuses to permanently increase the size and scope of public spending.

The challenge facing the government is to restrain spending and cut taxation so the economy can provide the lifestyles we aspire to through enhanced growth and opportunity, not through government expansion and redistribution of existing wealth.

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