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Size matters: just how big is Australia’s government?

Depending on who you ask, Australia is either at the top or the bottom of the list among rich countries for the size of its government. Two sides of the coin from Judith Sloan and John Daley.

How big is Australia’s government?

To us mere mortals outside the economics profession, it seems like a fairly straightforward question. Apparently not — depending on who you ask, we’re either at the top or the bottom of the list among rich countries.

Writing for The Australian on Saturday, Judith Sloan made the argument that despite what “many left-wing commentators would have us believe”, Australia is a high-taxing country.

The problem with the statistics usually cited is our superannuation system. While other countries rely more heavily on traditional social security systems funded through regular taxes, Australia’s superannuation set-up means the stats tend to ignore this nonetheless compulsory cost, giving us an artificially low reading. Sloan argued:

“Indeed, if we adjust for this difference, it turns out Australia is among the highest taxing countries in the world, particularly as the world is much more than the mainly broke OECD countries.”

But the Grattan Institute’s John Daley is having none of it. He disputed the “myth” that Australia has big government at a Melbourne Economic Forum event on Thursday.

“Australia has very small government by OECD standards. That’s true even if you add in compulsory superannuation contributions,” he argued.

Referring to Sloan, he added: “There was a well-known Australian commentator who is a former academic who wrote in the paper early this week that Australia has large government relative to the OECD when you include superannuation contributions. It’s just not true when you look at the numbers.”

Daley presented a graph, shown above, comparing Australia’s government spending as a percentage of GDP with and without superannuation included, demonstrating Australia is fairly low compared to other rich countries.

“We have a very targeted tax and welfare system.”

There’s also a reason superannuation doesn’t tend to be included in measures of taxation. “Of course those are not completely analogous to the social security contributions of other countries because when you die your superannuation contributions get passed on in your estate,” he said. In other countries, the government gets to keep your social security contributions.

Before tax and redistribution Australia is one of the most unequal countries in the world, he added. After the social system has worked its magic, “we are about middle of the pack”.

“We have a very targeted tax and welfare system,” he argued.

“So yes it’s true that Australian top income earners pay quite a lot of income tax, to which one of the responses is, yes and they get a very disproportionate share of the income in the first place relative to most other developed countries.

“So that’s where we spend the money, and my suggestion is we don’t have particularly large government, and we also don’t have particularly large taxes.”

Note: the image is of graph shown in John Daley’s presentation to Melbourne Economic Forum on Thursday. Data for countries marked with asterisk are for 2013; Turkey is 2012. Sources: OECD and the Grattan Institute.

Author Bio

David Donaldson

David Donaldson is a journalist at The Mandarin based in Melbourne.