Let me tell you / how it will be / There’s one for you / nineteen for me …

Ooh-ooh I’m the taxman.

Ken Henry is a dude from Taree.  He likes wombats.  He is also the head of the Treasury.  The Treasurer asked him to do a big old review into what’s what in the tax system, and what we should do next.

The review was finished just before Christmas, and the Treasurer is currently reading it, trying to figure out what it all means, and whether the bureaucrats suggestions are actually possible in practice.

The Treasurer hasn’t told anyone what’s in the review yet.  But there’s an article in todays paper saying that the review is going to suggest higher taxes.

Oh No!!

Nah.

We’ve been paying more and more in taxes ever since The Big F.  It is not necessarily a big deal.  The extra taxes will help pay to keep our parents healthy as they retire.

If you listen to the Budget the Australian Government puts out every year, you could start to believe it spends most of our money on tax cuts and solar panel rebates.  Not true.  The Budget they release focuses on what changes year to year.  There’s huge amounts of expenditure that nearly never change.  Here’s the breakdown of what really happens to the tax we pay:

(Sorry for this ugly pie chart.  At least it shows the ATO is not wasting taxpayers’ money on graphic designers…)

The big message baked into this pie is that Social Security ($96 billion) and Health ($42 billion) are the big uses of our money.  If you try to break down the social security one, you’ll find it’s a big grab-bag of different payments.  The dole is only about 5 percent of that.  Pensions, Ausstudy, disability pensions, etc all add up to account for the rest.

While there’s probably room for expenditure cuts in all of these fields, (Defence, I’m looking at you) none of them stands out as inherently a bad investment.  If the Government needs more coin to effectively cure the sick, educate young minds, shoot foreigners, and look after the unfortunate, a minor tax hike is probably justified.

Plus, not every one hates paying more tax:

BBC: Rich Germans demand higher taxes

People Willing to Pay Higher Taxes

The fact the story about higher taxes got leaked suggests the Government is trying to prepare the public for some big changes. Look at this quote from Henry:

“Tax reform is always difficult – even the things that are most obvious,” he said.

What does this mean?  I suspect it means closing some big loopholes.  No more negative gearing??  Changes to company tax?  I can’t wait to find out what happens next!

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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