30 October 2023

Former head of public service tells government to raise taxes

| Chris Johnson
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man speaking at lectern

Former top public servant Dr Mike Keating says we need higher taxes. Photo: Australia Institute.

Former secretary of the Department of Finance Mike Keating has delivered a bold speech calling for increases to taxes to keep up with the standard of service delivery the public expects.

He warned that budget pressures from the care economy – health, education and housing – will continue to rise significantly over coming decades, so the tax base must be increased to keep pace.

Addressing the Australia Institute’s Revenue Summit 2023 at Parliament House on Friday (27 October), the retired public servant – who was also secretary of the Department of Prime Minister and Cabinet – said Australia needed a full-scale revenue review.

“There is no correlation between present overall levels of taxation and any country’s economic growth rate,” Dr Keating said.

“Many high-taxing countries in northern Europe, for example, have a higher growth rate in their per capita GDP than low-taxing countries such as America.

“Similarly, the drop in Australian income tax rates in the 1980s was not associated with any increase in employment participation or productivity growth, and Australia is already one of the lowest taxing countries among the developed nations of the OECD.”

The tax measures Dr Keating suggested include a carbon tax, congestion charging and substituting a land tax for stamp duty.

He said the GST should be lifted, and a resource rent tax should be introduced so the community can share some of the super profits that mining companies make due to “fortuitous circumstances, rather than their effort or initiative”.

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Dr Keating called for a crackdown on company tax avoidance, but also the closing of loopholes in the personal income tax system like the rate of capital gains taxation and negative gearing.

A more progressive income tax rate scale, with the starting point at least adjusting the stage three tax cuts was needed, he said, adding that a full-scale review of the rate scales would be an even better move.

“There is ample evidence that government services and assistance in Australia are presently underfunded, and service provision is therefore inadequate,” he said

“The only way to fix this is to increase the amount of taxation revenue. But this will require an important change in government policies, which are founded on almost no significant change to taxes.

“And while the government seems to be sympathetic to many of the demands for improved services, it is most unlikely to change its tax policies without popular support, so we need to change the public debate.

“The public needs to accept that you cannot have adequate service provision without paying more taxes.”

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Dr Keating suggested that tax as a proportion of GDP should increase by 4 per cent, and that such a move would not harm economic growth.

He said the budget fails to recognise just how much additional funding will be needed over the long term for aged care, child care, social housing, hospitals and primary healthcare, tertiary education, income support, reducing carbon emissions, and defence and foreign aid.

Prime Minister Anthony Albanese has rejected calls to change the $243 billion stage three tax cuts due to kick in mid-next year.

He and Treasurer Jim Chalmers have so far been timid in their approaches towards changing Australia’s taxation system.

Dr Keating retired from the Australian Public Service in 1996. Between 1997 and 2007, he was a visiting fellow in the economics program at the Australian National University.

In 2015, he was appointed chairman of the Committee for Sustainable Retirement Incomes, a position he still holds.

The Australia Institute, a progressive think tank, stages the revenue summit to publicly explore revenue-raising options to meet Australia’s growing public spending needs.

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Perhaps Keating should investigate the waste in government before asking business and the public to pay more tax to support governments unaccountable spending spree. I’m sick to the back teeth of academics spruiking their ill informed opinions.

Go out and start a business Dr Keating. Do the marketing, find a location, borrow to set it up and hope your product or service will provide you with a decent lifestyle after paying staff, super and tax. Then listen to semi intellectuals like you who have no idea and zero financial accountability as to how they can squeeze more out of everyone without the slightest attempt to find internal cost savings. Keep your opinions to yourself.

Criticise his opinions all you want Michael, but it is a space he has relative expertise in, and he was speaking at the Australia Institute’s Revenue Summit 2023. I don’t think he was going to be speaking about the other side of the equation too much in that forum, was he?

Consider the context in which the comments were made before you go blasting off willy nilly.

Dr Michael Keating is one of Australia’s leading experts on Australia’s economy Michael M. He is well respected and certainly not ill-informed!

Yeah I’ve heard all that before. Public servants have zero accountability. They don’t run business but get funded whether they do anything or not. Maybe reduce taxes and encourage business rather than have this entitlement mentality. I certainly don’t need advice about my comments from you.

So what’s the issue with finding internal savings and being accountable? I’m.sick of so called experts wanting to increase taxes without looking at internal savings.

Maybe just maybe , look at where you are spending money currently , how many wasted dollars with nothing to show for it , maybe also tax companies that are using loop holes ,

Keating favours raising taxes and the GST.
This view coincides with a recent OECD report wanting Australia to raise and broaden the GST. Treasurer Jim Chalmers said the OECD report lined up well with Labor’s economic plan.
It appears Labor and it’s academic supporters are sounding us out, or softening us up, for an increase in the the GST.
GST is a 20% flat regressive tax that takes no account of income or capacity to pay. It is therefore an unfair tax that hits low and income earners the hardest.
We already pay high personal income taxes and raising the GST to 13, 14, 15% or higher would mean the price of everything would rise. This would result in financial stress across the country at a time when wages are not keeping up with inflation and rising interest rates and mortgages are squeezing household budgets.
Raise GST? Absolutely not.
Yes, there is a need for additional government spending in some areas, but the debate should not be on raising taxes, but how government spending is allocated, where it can be redirected, how it can be cut back and eliminating wasteful unnecessary spending of which there is much, as anyone who has worked in government well knows. One example of excessive, unnecessary and unproductive government expenditure on show for all Australians to see was the Voice referendum.

GST is a 10% tax (correction)

Alan Cummine1:20 pm 31 Oct 23

The critical issue in Keating’s paper that seems to be missed in some of these criticisms is which taxes to increase and which loopholes to close. There is massive imbalance and inequity in our tax system that would provide much public revenue if corrected. Personal taxes for the bulk of Australians would be little affected.

But he hasn’t made the case that more taxation overall is needed in the first place.

He’s 100% correct that the tax mix should change because of the inequities that you mention, but the extra revenue gained should be offset in tax reductions in other areas, income tax being an obvious area that we currently rely too heavily on.

I think it is a valid point to make around fixing loopholes. Which should then be combined with as you say Chewy a look to see where other taxes can be reduced.

But what fat chance have we got of the comprehensive and complex story needed to actually sell such changes to the electorate? The biggest problem with tax reform is the easy ability to attack anything complex in this space (especially in a world where just shouting ‘no’ is a highly effective tactic if you don’t like something irrespective of merits of a proposal).

Labor won’t touch it with a barge pole (Rudd tried, Gillard tried at the edges and got smashed about on it), and we can see who runs the LNP agenda in this space – its only good if its simple sell and big benefits for their target clientele.

We need comprehensive tax reform in this country, with nuanced consideration of the tax system as a whole. The chances we will get it are between zero and bugger all sadly.

Inflation is just another form of tax. The government lockdowns caused the economic misery we’re all living under and the sky high inflation. They’ve effectively already raised taxes. There’s no more blood in this stone.

Capital Retro10:53 am 31 Oct 23

Increased revenue from inflation makes paying yesterday’s government debts easier.

Maybe the government should be looking at executive salaries as one of the main drivers of inflation. Not to mention tax breaks for wealthy retirees costing more than our health and education budgets combined!
Then there are the superannuation contributions and earnings which receive generous tax breaks providing an inheritance windfall for those with wealthy parents. This is a cost to the budget (taxpayers) of 2% annually (over $45billion dollars) and rising.
Don’t get me started on the abuse of NDIS! NDIS was created for those most in need and has now blown out, crippling our country through rorting and by those who least need it!
I could go on …

You really don’t understand the concept of inflation if you think the executive salaries in government are a main driver of it.

Yes some of those salaries are exorbitant and the levels that they are at could be reconsidered. But to suggest that is driving inflation is quite comical. Its a tiny drop in the ocean compared to other much more important factors.

I agree with your comment JS9. I said “one of”! I was referring more to “Corporate” salaries eg. our recently retired Qantas chief, his exorbitant wages and his retirement package. But he is by far not the only one!

* Maybe the government “and most particularly corporate Australia should be looking at their exorbitant senior executive salaries” …

The government does not remotely need significant increases in revenue to provide the essential services they need to.

What they do need to do is reduce the ridiculous amount of waste in current spending and rein in the enormous growth in expenditure occurring unnecessarily year on year.

Budget receipts have increased as a proportion of GDP such that they are now predicting constant receipts of over 25% of GDP year on year.

What this actually means is current taxpayers are facing a higher burden than previous generations all at a time when the proportion of working age people in the population is shrinking. It’s not remotely equitable to say that taxation should be even higher.

On a side note, can they also stop using the “Australia is already one of the lowest taxing countries among the developed nations of the OECD” argument as if it means anything. Australia is one of the very few countries that has a privatised retirement system where our Superannuation savings are considered outside of government “taxation”. Most other countries have a much larger taxation component linked to this function which artificially lowers Australia’s overall taxation take in comparison. It’s a meaningless stat in a like for like comparison.

HiddenDragon7:15 pm 30 Oct 23

“The public needs to accept that you cannot have adequate service provision without paying more taxes.”

That is quite true, but politicians of all persuasions, including those whom Dr Keating worked closely with, have been practising Magic Pudding economics for a long time, and large chunks of the voting public have come to treat this as the natural state of affairs – even a minor shift in these attitudes would take political skills and fortitude that has not been on display in this country for a long time.

Something will have to change, but the most likely outcome will be some nudging up of taxes, continued deficit funding and hopefully, as others have already suggested, a sharper focus on getting better value for money in service delivery. The next Coalition government, when/if that happens, will probably also have to unwind some of Labor’s handiwork in turning discretionary/conditional programs into entitlement programs.

The argument for much higher and broader taxes, justified (as is often the case) by selective comparisons with the countries of north-western Europe, overlooks the fact that those countries are members of a huge, highly protectionist (as Don Farrell et. al. have recently discovered) trading bloc which allows them to get away with things that a small, open trading nation like Australia, located in a low cost, cut-throat part of the world, cannot.

William Teach7:08 am 31 Oct 23

Maybe that should be taken as a sign that open trading was and is a terrible idea:

Daniel O'CONNELL2:56 pm 30 Oct 23

Thus speaks the elite that is, btw, on a nice superannuation earner.

Capital Retro3:34 pm 30 Oct 23

Revealing article here: https://www.afr.com/politics/federal/super-guru-michael-keatings-hopes-and-worries-for-your-retirement-20151026-gkiwnn

He is a typical lefty elitist and he appears to have never risked a dollar of his own.
He didn’t even pay for the lunch.

Beat me to that it Daniel. Loves living in the bubble on a sizeable Defined Benefit for life

Thanks for your concern for my welfare, Bob, but it’s misplaced.
I’m quite well off, but I don’t recall working all that hard to get here.
Lucky is what I’ve been. Bought a house when prices and interest rates were low; put money into Super with all of those tax breaks; investment property with similar perks. Typical baby boomer, I guess.
I’d happily pay higher taxes, but I don’t know how to. So, in the meantime, I make the occasional donation to various charities.
It’s funny how governments, of all flavours, cut taxes to the rich when budgetary things are going well, and cut support to the poor when things are going badly.

kd5smith – Good for you, I am glad you were born at a time that allowed you to cash in on the property/share markets but not all of us are that old that we were able to buy into the markets before prices went berzerk. Some of us actually have to work for it.

It’s funny how generous rich baby boomers are with other people’s money now that they are in such a privileged position. You’re already stated that you were “quite well off” so paying more tax isn’t a big issue to you but for people attempting to get to where you are currently, it definitely is. You see the difference, right?

I wonder how your opinion would change if you were currently working hard and paying off a massive mortgage like most people?

devils_advocate1:36 pm 30 Oct 23

“The public needs to accept that you cannot have adequate service provision without paying more taxes.”

Why should we accept this at face value? Can they not make the services cost less by eliminating waste, simplifying enabling policies and using technology to drive improvements and efficiencies?

What a lazy answer – “if you want a better product you have to pay more”.

Imagine if computer companies or car manufacturers thought this way.

Guess there’s no competition to drive down prices in the provision of government services though

devils_advocate – Nailed it in one, tax and spend, tax and spend is all they know.

The problem with suggesting ‘competition’ to drive down prices in the provision of government services is the effective mechanism for that (private provision of some services) often fails to get anywhere near achieving value for money either. Just need to look at the NDIS for example, or some of the long term rorts in the pharmacy space. The private provision just leads to opportunities for overcharging and gouging by private providers instead.

They can be part of the solution, but without sophistication in how contracts are managed and prices are set, it just becomes another massive gravy train to get on for a select few.

“Prime Minister Anthony Albanese has rejected calls to change the $243 billion stage three tax cuts due to kick in mid-next year.”

That is so very dishonest. Referring to the figure for the 10 year projected cost of these adjustments to offset bracket creep for what is already the most highly taxed group in the country.

No-one mentions the massive costs of the phase 1 and 2 low and middle income tax cuts that were implemented years ago while this group was doing all the heavy lifting tax wise.

You know that every time additional taxation is flagged, exactly which group they will be going after to pay more – those that have worked hard to achieve a comfortable life for their families. As soon as my mortgage is paid off, I will be cutting back greatly on hours worked as losing more than half of it to tax is simply not worth it.

I’m all for increasing the GST, that way everyone shares the load and you can’t minimise your way out of it rather than just putting the boot into one particular group as usual.

Maybe you can buy a tiny violin and start playing it when you are working less Bob.

That isn’t to say there isn’t validity in some of what you have to say. But we’ve a long established approach of progressive taxation in this country, and the burden will always land heavily on those earning the most, because well that is what a progressive taxation system does.

While the Stage 3 tax cuts do address bracket creep, they do go a fair bit beyond the changes needed to just address that. I still think bracket creep is the most politically motivated of issues anyway – it could be legislated away tomorrow, and I think the actual impact on most workers and their decision making is quite overblown.

And I’m intrigued as to just how you are paying more than half of any income as tax. Our highest personal tax rate is 45% + 2% for medicare levy on top of that, plus another 1.5% for the MLS if you don’t have Private Health . While I’m not mathematical genius, I’m not sure how that adds up to more than 50% – unless you are paying off HECS still I guess. But even then, that really isn’t taxation in its pure form, more paying back a voluntary loan signed up to.

JS9, Have a look at some of the percentage drops of tax paid in the the phase 1 and 2 as a share of taxable income and then compare that to the drops in phase 3 and you will see that they are still less. Bare in mind that many of the recipients of the first couple of drops don’t even pay net tax to start with after all the benefits, most of which the people in the upper brackets are ineligible for.

“I still think bracket creep is the most politically motivated of issues anyway – it could be legislated away tomorrow”

Given the level of bracket creep is based on inflation and as such variable, how do you propose to legislate it away exactly?

I’m glad you asked about levels of taxation. 47% base and then an additional 10% on top of that as soon as you attempt to spend it on anything, add other random taxes like fuel excise of around 50c per litre and ever increasing and if you attempt to dodge that by buying electric… well most of them have “luxury” car tax attached.

It’s amazing that we live in a country where you can buy a $50k watch, a $100 million dollar private jet or yacht and attract no “luxury” tax but if you attempt to buy a decent car, you get slugged with it. 5% import duty, 33% luxury car tax and then 10% GST. We are literally paying a tax, on a tax, on a tax yet some people wonder why cars are so expensive here.

I listed only a couple of examples but when you start looking into things like this, you realise what an absurdly highly taxed country we are… not even mentioning when your local government spends like drunken sailors and makes their citizens pay for it.

While no, you can’t escape some of these, you absolutely can choose to limit the hours you spend away from your family making money that will be taxed at such a stupid level anyway.

devils_advocate1:24 pm 30 Oct 23

@Bob you forgot to mention that in addition to tax, the minute you try to earn a decent income as a household the government starts withdrawing any and all benefits you might have qualified for, such as childcare subsidy

At this point the effective marginal tax rate a couple might face (combination of income taxes and benefits lost) can be more than 100%.

Ironically, by definition this discourages the most productive workers from contributing hours worked to the economy.

“Given the level of bracket creep is based on inflation and as such variable, how do you propose to legislate it away exactly?”

Could it not just be achieved by effectively tying bracket indexation to inflation or whatever measure you want that effectively reflects changes in wages? Far from perfect of course and some delay (and inaccuracy), but it exactly illustrates the issue is political only – there are ways to effectively solve it for most it if there is a political will. There are many, many things in legislation that have indexation built in – you could do it with tax brackets if you wanted to do it.

“I’m glad you asked about levels of taxation. 47% base and then an additional 10% on top of that as soon as you attempt to spend it on anything, add other random taxes like fuel excise of around 50c per litre and ever increasing and if you attempt to dodge that by buying electric… well most of them have “luxury” car tax attached.”

So you don’t really get marginally taxed at > 50c in the dollar as you claim then…. nice try at trying to conflate multiple matters.

devils_advocate, That was what I was referencing with:
“the recipients of the first couple of drops don’t even pay net tax to start with after all the benefits, most of which the people in the upper brackets are ineligible for.”

I always laugh when I read statements from the left like “A high marginal tax rate isn’t a disincentive to work”. They would have to be utterly delusional to actually believe that.

JS9 – You are proposing marginal tax rates that change every year? That would be an absolute nightmare to administer. The taxation system is stupidly complex already and that certainly wouldn’t help matters.

Please read back through my post and point out the part that I stated that my marginal tax rate was over 50%… I’ll wait.

William Teach7:23 am 31 Oct 23

The right doesn’t believe it when applied to the poor, so why would the left believe it when applied to the rich people saying that it is true for them?

William Teach5:34 pm 31 Oct 23

I don’t know what he was proposing but the simplest way to do it would be to scale the bracket boundaries by last year’s CPI for the following year along with “everything” else. It would be fairer to use WPI, multiples of the minimum wage, or income percentiles, but whichever you choose the brackets would be known at the start of each financial year based on the data from the previous year.

Ideally the tax rate would be a continuous curve rather than piecewise linear, but the same idea could be applied.

There are already plenty of parts of the tax system that change every year Bob. HECS brackets, rebate amounts for private health insurance (at times both rate and points where different brackets come in) are two simple examples, and there are plenty of other bits that have changed on a semi-regular basis.

If you think bracket creep is such a massive issue in any sphere other than the politically created one, the solution to solve it there is easy to see. And I never suggested changing tax rates – simply indexing the tax brackets. This of course effectively changes when different marginal tax rates kick in, but it doesn’t involved changing the actual tax rate.

Never said it was perfect – but your the one whining about it and saying it can’t be solved, when it clearly could be.

And you did whinge that you lose more than half your money in tax, stating that is a disincentive to earning more. If that isn’t whining about what is in your mind the effective marginal tax rate (using your bizarre throw in every tax I can think of beyond income tax), then I don’t know what is.

That is effectively what I was getting at William – nothing to do with changing actual tax rates.

You couldn’t use the current CPI/WPI/whatever mixed measure you come up with(because it wouldn’t be known in time), but if you work on using data from say 6 months/12 months before, the brackets could still be well known well in advance of the current financial year.

For example – HECS debt indexation happens on 1 July each year. They determine that based on CPI up to the March quarter of that year (see https://atotaxrates.info/individual-tax-rates-resident/hecs-repayment/#:~:text=Section%20140%2D10%20of%20the,March%20for%20the%20preceding%20year.)

You could do similar for indexing of the tax brackets each year – though to appease those that whine about the complexity of the tax system, you might want to aim to use data ending the December quarter of the preceding year (that way brackets could be confirmed say Feb).

Its far from a perfect solution, but it removes the dreaded ‘bracket creep’ as best as a tax system can, and removes the ‘lets fix bracket creep through a tax cut’ narrative that rolls around every few years when a politician wants to screw with the Federal Budget a bit more.

JS9, Wow, your entire post is ridiculous. I never at any stage stated that “…and saying it can’t be solved,” It absolutely can be solved, by adjusting the brackets to offset the change in inflation… you know, as they are currently doing.

Just take the “L”, admit you stuffed up and that I never at any point stated that my marginal tax rate was over 50%. Stop making things up that I never said and don’t believe as you have already done multiple times at this point. I stated that I lose more than 50% of my income in tax, which I do and I provided a list of some of these taxes; You are the one that apparently needs to work on your reading comprehension.

If you want to take my observation on the self-evident fact that a particular group of people is always the ones targeted for tax increases even though they already carry most of the income tax burden in this country as a whinge, then that’s your opinion.

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