The Liberal Party have re-announced their 2018 tax ‘speed limit’ policy which economists have labelled arbitrary.
The media are reporting on another re-announced Liberal Party policy, the tax ‘speed limit’ of keeping taxes below 23.9% of GDP. First announced in 2018, 23.9% was Australia’s average tax-to-GDP ratio between the introduction of the GST and the Global Financial Crisis.
Why the government is sticking with this arbitrary figure is unknown, especially considering Australia is facing vastly different circumstances than it was in 2018 having lived through a global pandemic and facing increased geopolitical turmoil. When this target was announced in 2018, the Treasury itself recognised the figure was only “an assumption”, and should not represent a government policy or target.
Richard Dennis and Matt Grundoff, economists from the Australian Institute, argue that having a fixed tax rate is bad macroeconomics, that when the economy is booming it is prudent to collect more tax to reduce inflationary pressures and vice versa in economic downturns.
Callum Foote was a reporter for Michael West Media for four years.