Tax Payments in Australia After Covid-19

In this blog, you will learn about tax payments in Australia after Covid-19. How they will change? That is to say, the government throws billions at tackling Covid-19 and the people will be paying for it in the years to come. The biggest stated message from the intergenerational report, released by Treasurer Josh Frydenberg during the lull between lockdown was that we will need more tax. But, at the moment, it is a matter of throwing everything we have got at getting on top of the Covid outbreaks. Worrying about how to and to what extent we will need to pay for it can come later.

That is to say, when the economy is healthy again, taxes are going to have to rise. In addition, the reason the report doesn’t talk about tax payments in Australia after Covid-19 explicitly is that the Government is sticking with its arbitrary and implausible guarantee that tax collections will never climb above 23.9% of GDP. It is the average between the introduction of the goods and services tax and the global financial crisis. On the other hand, it might be because what is needed sits at odds with legislated high-end tax cuts. In addition, it is likely to cost $17 billion per year from 2024-24.

Similarly, among the drivers of increased government spending identified by the report is spending on health. At present 4.6% of GDP and on the report’s projections set to climb to 6.2% over the next forty years. Now that you know about tax payments in Australia after Covid-19, let us move forward.

How Will The Increased Taxes Be Spent?

• We’ll Want Better Health

To fund this alone, the government will need to collect 6% more tax than it would have had spending on health if it has stayed where it was as a proportion of GDP. That is to say, most of the extra spending on health won’t be a direct result of the population ageing. It will be because health technologies are getting better and becoming much more expensive. In addition, incomes are rising. When the ANU election survey began in 1990, 54% of the answers regarded health as extremely important. That is to say, it is now 70%. In 1990, 11% regarded health as not very important but it is just 2% now.

The intergenerational report has spending on aged care climbing from 1.2% to 2.1% of GDP, which by itself means the tax take will have to be 4% higher than otherwise, but it was prepared ahead of the government’s final response to the aged care royal commission. In addition, the National Disability Insurance Scheme already accounts for one in 20 tax dollars collected and is set to overtake Medicare. The report also notes the Government’s response to the royal commission into disability care is presently underway. It is likely to place “additional pressure” on costs.

• We’ll Need To Spend More Than Projected

None of this extra spending is bad if it delivers value for money and it is what the public wants. But it is hard to reconcile with official projections in the report showing government spending sending climbing only 2.5% per year in real terms over the next forty years, compared to 3.4% per year in the past forty. The report gets there in part by an outrageous sleight of hand. In addition, it says JobSeeker and other payments will become tiny as a purporting of GDP. That is to say, they will only climb with inflation which is typically low rather than wage growth or GDP growth which is typically higher and lines up with how the pension grows.

In addition, a moment’s reflection would show if that actually happened for forty years or not. Which is what the treasury’s report assumes. That is to say, JobSeeker would fall from 70% of the single aged pension to a hard-to-justify 40%. We know there is nothing to stop an intergenerational report using more realistic assumptions.

The 2015 report, released at a time when the Abbott government planned to adjust the pension in line with the JobSeeker formula, relaxed the assumption after thirteen years because if it left it in place the pension would slide untenably below community expectations.

• We’ll Easily Be Able To Afford More Tax

There is nothing wrong with paying more tax. That is to say, if it is for things we want. For example, better healthcare, better-aged care, better disability care and benefits we can live on. The intergenerational report has government spending climbing by 4% of GDP between now and 2061. But it also has real GDP per person almost doubling, climbing 80%. That is to say, even if that is an overestimate and GDP per person grows by, say, 50% and the need for tax grows by more than four points, we will easily be able to afford the extra tax. As a result, we will want what that tax will buy. That is to say, expectations climb with income.

In addition, the present government will be long gone by the time the tax to GDP ratio reaches its cap of 23.9% of GDP which the report expects in 2035. An obvious place to look for the tax is high-income senior citizens. As at present are enjoying tax-free super, refundable franking credits and special tax offsets.

Now you know how tax payments in Australia after Covid-19 will be affected. We hope you are ready for the changes that may come in the future.