Whose reform? Which equality?
by John Nevile
Zadok Perspectives Issue No. 61
Winter 1998

The overall level of taxation

If we think back to the verses quoted from Isaiah, the biggest group in Australia burdened by a very heavy yoke are the unemployed. The yoke represented by high levels of unemployment is one that Christians should be very concerned to break..

Although many plans varying in detail have been put forward to reduce unemployment substantially, they all basically fall into two general approaches and each approach requires higher taxation.

One approach is to take measures that increase economic growth, and hence demand for labour in Australia, and at the same time spend quite substantial sums of money fitting the long-term unemployed to be useful members of the labour force. These labour market programs have to be financed, in the not very long run, by higher taxation.

The other approach is to reduce minimum wage rates. But the reduction has to be quite drastic. The professional literature makes it very clear that small cuts will have a negligible effect. Cuts of 20 to 30 per cent are required. However, a cut in minimum wages of this amount would make necessary a large increase in social security payments if there is not to be a large new class in Australia, the working poor, with a consequent increase in crime and social degradation. Incidentally, the last mentioned will also require an increase in taxation to pay for the necessary law and order measures. The increase in total social security payments would be necessary because, with large reductions in wage rates at the bottom end, many of those employed, as well as the unemployed, will be heavily dependent on social security.

Australia is one of the three most lightly taxed countries in the OECD. If we increased the total we pay in all taxes, direct and indirect, by 10 per cent, we would only be at the level of taxation that held in John Major's United Kingdom and still be well below the level of Canada. There is plenty of scope to increase the overall level of taxation. Christians should be concerned that any program of tax reform will give the tax system enough revenue raising capacity that the measures necessary to reduce unemployment drastically can be financed.

The vast majority of public arguments put forward for, or against, this or that tax reform are based on naked self-interest, or self-interest only very thinly disguised. Christians should give a lead in doing better than this. We should emphasise that tax reform is about the welfare of the whole community with particular concern for those who are least well off.

To: Perspectives Issue 61

John Nevile John Nevile is Emeritus Professor, School of Economics, University of New South Wales.