Briefing paper

The arbitrary 23.9 per cent tax revenue to GDP figure: from a convenient assumption to a ‘speed limit’

7 May 2018
Description

The government has recently been putting the case that Commonwealth taxation as a share of GDP should be capped at 23.9 per cent. The present brief notes that the present 23.9 per cent cap was just a working assumption underlying Treasury projections in the 2015 Intergenerational Report and budget documentation that included discussions of long-term and medium-term projections. That working assumption has morphed into a ceiling or, in the Treasurer Scott Morrison’s words, a ‘speed limit’.

The present 23.9 per cent limit is just the latest of equally arbitrary ceilings to which governments have committed from time to time. As arbitrarily chosen targets they have also been at the mercy of data revisions and even definitions of what constitutes a Commonwealth tax.

When they are taken seriously arbitrary tax to GDP ratios can severely limit choices available to the electorate. The arbitrary cap cuts across questions such as the appropriate level of government services, their composition, their financing and how the distribution of income might be addressed. All of these are properly questions to be addressed in the political arena.

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2018
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