|by Katherine Gregory and David Hetherington|
This report presents the results of a Survey undertaken by Per Capita on public attitudes towards taxation in Australia.
Per Capita has asked over 1,000 adult Australians for their opinions on a wide range of taxation issues. The Tax Survey was undertaken against the backdrop of Australia's Future Tax System Review ('the Henry Review') and the global financial crisis (GFC), each of which has stimulated new discussions and revived old arguments about tax, public spending and deficits. As most analysis surrounding the Henry Review has been technocratic and limited to those familiar with the tax system, this Survey offers a macro-perspective of everyday Australians’ attitudes toward taxation, public spending and the role of government.
The poll reveals some intrinsic Australian values - our egalitarianism and belief in the social contract. Australians believe in a progressive tax system and a society that invests in the provision of public goods and services, even if that means we are periodically required to run budget deficits. Simplicity also rates high on the list of public concerns about the tax system.
Perhaps unsurprisingly, the Survey shows considerable lack of awareness about levels of taxation and the way in which revenue is spent. Finally, we see a stark cognitive dissonance in which taxpayers express contradictory desires for both lower taxes and increased public expenditure.
The main findings of the survey are outlined below.
1) Australians want a more progressive tax system
Contrary to some popular arguments, Australians want to see a more progressive personal and business income tax system. 95% of respondents believe that low income earners and middle income earners are taxed too much, while only 16% believe that high income earners pay too much tax. However, only 3% of those surveyed feel low and middle-income earners pay too little tax, whereas 53 per cent believe that high income earners do not pay enough.
Similarly 64% of respondents feel that big businesses pay too little tax while only 3% state that small businesses do not pay enough. Conversely, 44% believe that small businesses pay too much tax while just 4% believe the same about big business.
These sentiments hold across age groups, income brackets, education levels and political party preference. Perhaps the most surprising feature of these findings is that even high-income earners believe that the high-income bracket and big businesses do not pay enough tax.
Opinions on general levels of taxation differ according to perceptions of one’s own tax obligations. Of those who believe they personally pay the right amount of tax (45% of respondents), a majority believe high-income earners pay too little. However, of those who say they pay too much tax (44% of respondents), a majority believe high-income earners pay too little or the right amount.
2) Australians want governments to spend more on public services, especially health
Increasing public demand for greater spending on goods and services, particularly health, is an emerging theme in Australian surveys of social attitudes over the past 20 years. The findings from Per Capita’s tax poll fit this trend. 79% of those surveyed said that governments should spend more on public services, including 52% who said that governments should spend much more. On the other hand, only 6% of respondents believe that governments should spend less.
This represents a significant shift in public demands since the mid-1980s. In the 1987 Australian Election Study, 65% of respondents favoured tax cuts while only 15% wanted more spending.
Similar to previous surveys, health is by far the highest priority area, with over 90% of respondents wanting much more spent on health. The other spending priorities are education (82%), social security (48%).
3) Australians support the use of a deficit during an economic downturn
The GFC has prompted debate about how the government should respond to an economic downturn. This poll shows that, despite some debate over the government’s fiscal spending measures, Australians support the use of a budget deficit to fund spending during a recession. 61% of respondents felt that it was better to stimulate the economy by running a budget deficit during a recession than to reduce the deficit. Only 22% of respondents supported deficit reduction over the debt-funded stimulus.
Of those people who believed that it was better to stimulate the economy using a deficit, a majority (57%) felt that this should involve a combination of greater public spending and tax cuts. Of these people, 25% feel that the deficit should be used solely for increased spending, while 14% said it should be used for cutting taxes only.
4) Australians would prefer to see their tax system simplified
There is a strong preference amongst Survey respondents for a simplification of the tax system. A large majority would prefer that the tax system was made easier to deal with, rather than it was adjusted to make it harder to avoid paying tax.
Given the choice, the preferred option for tax reform would be to centralise federal, state and local taxes (34%), followed by a reduction in the number of taxes (24%), simplification of deductions, rebates and exemptions (20%) and finally a streamlining of the personal tax return (13%).
5) There is considerable lack of awareness about patterns of taxation and expenditure
There is a notable gulf between perception and reality in respondents’ views on levels of tax and spending. There is also a significant lack of awareness of the amount of tax borne by individuals and companies respectively, and about the levels of public spending directed to different policy areas.
The average respondent believed that individuals pay 50% of total tax in Australia and that companies pay 42% of total tax. In fact, the burden of taxes on individuals and companies in 2008-09 is 75% and 25% respectively.
In terms of spending, respondents generally overestimated the share of spending dedicated to major policy areas. Respondents believed that 29 per cent of total government funding is spent on health when the actual figure is 20%; that 25 per cent is spent on education (actual figure: 12%); that 22 per cent is spent on defence (actual figure: 5%), and that 9 per cent is spent on overseas aid (actual figure: <1%).
6) A cognitive dissonance for increased spending but lower taxes still exists
This cognitive dissonance has been identified in a range of previous surveys, particularly the Australian Surveys of Social Attitudes and Australian Election Studies. It is equally apparent in the findings of this poll.
While most respondents opt for increased spending on public services, 60% of them also think its more important for the government to lower taxes for economic growth, than set taxes high enough to pay for essential services.
Considerations for policymakers
The survey raises important considerations for policymakers, including
• The potential for more progressive personal tax rates;
• The desire for simplification of the tax system, and opportunities presented by this;
• The need to counter a lack of awareness about levels of tax and spending; and
• The opportunities for personalized information provision to individual taxpayers.