The workbook used throughout this article is available here.
I saw this video the other week where Paul Murray from Sky News concluded that we don’t have a revenue or a spending problem, ultimately we have an entitlement problem.
— Paul Murray LIVE (@pm_live) April 27, 2016
This pronouncement was based on ABS data showing that total taxes paid in Australia, to all three levels of government had increased every single year (it starts only 25 seconds into the video). Being a bit of a sceptic, my first thought was “what is he hiding or spinning?” and it didn’t take long to figure it out. The easiest way to sell a story based on a trend is usually to select your data carefully. In this case, the first year presented was 2009-10, otherwise known as the year after Lehman Brothers collapsed. So surely tax revenue was low then and is now recovering? So off I went on a data hunt.
All numbers used in this post have been obtained from the Australian Bureau of Statistics.
Tax figures were obtained from series 5506.0 – Taxation Revenue, Australia.
Government sector incomes and expenses are from item 5512.0 – Government Finance Statistics, Australia.
GDP is from item 5206.0 – Australian National Accounts.
Inflation is contained in item 6401.0 – Consumer Price Index.
Population is from item 3101.0 – Australian Demographic Statistics.
The workbook that consolidates the relevant bits of data from these sources, and contains the calculations and charts used in this post can be downloaded here.
There are minor discrepancies between the tax income figures contained in items 5506.0 and 5512.0. These are partly due to one level of government receiving tax from another, but there are other differences that I did not identify (yet). The maximum difference between the two in any one year is 1.8%. When looking solely at tax income, I have used item 5506.0 data as it went back to 1993, whereas 5512.0 only went back to 1999 in its current form.
GDP data uses the “Current Prices” sets rather than “Chain Value” or “Real,” so as to present fair comparisons with taxes and expenses which are also presented in “Current Prices.”
Government income and expenses
Sure enough, Sky News’ use of FY2010 as a starting point was critical to their story.
Total tax revenue decreased in both 2008-09 and 2009-10, although it only took one year to again be higher than the previous peak in 2007-08. Local government revenues were quite robust, increasing by 7.5% and 6.5% in those years. The last time tax revenue growth for local governments was less than 5% p.a. was in 1998-99 – and you wonder why there is a lot of talk about a broad-based land tax!
Apart from 2008-09 and 2009-10, the only other time any level of government decreased tax revenue since 1993 was state taxes in 2000-01, due to the introduction of the GST being credited at the Commonwealth level, with various state taxes reduced or eliminated. And the increase in Commonwealth taxes in this year more than made up for the states’ reduction.
Overall government income has been more stable. Since 1999, the lowest increase in total government income has been 0.4%, and only 4 times in 16 years has growth been lower than 4%.
Government expenses have also only increased since 1999, by a minimum of 1.2% in 2012-13 and a maximum of 15.4% in 2008-09.
Looking at raw numbers like this probably doesn’t tell a fair story. As the economy grows, you would expect taxes and other government income to grow too.
This chart shows a slightly different story – that the Government-sector share of the economy has, from an income perspective, been declining over the last 15 years, with a slight reversion over the last 5 years.
Until 2007-08, Government expenditure was declining in a roughly similar pattern to income, although somewhat smoother. This sharply reversed in 2008-09 as the Rudd government stimulated the economy with pink batts, school halls and cash handouts, and has only partially given back this increase in the following years.
Inflation and population growth
Instead of comparing Government income and expenses to the size of the economy, they can also be measured based on the population.
Unlike the GDP ratios, these show income and expenses increasing slowly over time. The pattern can be most clearly seen when based on per capita numbers.
Figures here are based on real 2012 dollars. What is clear is that over a long period of time, governments have been earning and spending more per person, with the actions taken during the GFC having a significant effect on financial performance.
So what can we take away from this.
Restricting (or expanding) your range of data can enable you to tell the story you want
Raw numbers are not always the best things to use, unless it helps your story – comparisons to other numbers are usually useful
Compared to the overall size of the economy, Government revenue and expenses have not really been increasing that much
Per person, revenue and expenses have generally been increasing over time.
This also takes me back to a recent conversation with a colleague regarding statistics, and how in a lot of cases, you can use different techniques to come up with what you think is the “right” answer. Their response was that there was only one right answer. Taxes and spending have again shown that, regardless of the data, what is “right” often depends more on a point of view than raw numbers.