We need to talk about tax. At the moment it remains firmly in the shadows of the election’s economic debates. But ignoring the elephant in the room doesn’t make it disappear. Whoever wins the election will face two significant challenges: raising enough revenue to pay for higher spending, and raising it in a way that doesn’t drag too much on economic activity.
To the first. The Coalition might trot out the claim of being the party of small government, but it just made government permanently larger. The budget anticipates that spending will stabilise at 26.3 per cent of GDP by the end of the decade. This compares to an average of 25 per cent in the decade before the COVID-19 crisis. It is even more extraordinary when compared to the projections before the 2019 election, which suggested government spending would shrink to 23.6 per cent of GDP by 2030.
