The Budget Test covers the major components of current Commonwealth taxation revenue and some of the larger components of Commonwealth expenditure, as set out in the 2018-19 Commonwealth Budget.
Of course as of April 2019 we have a new 2019-20 Commonwealth Budget, covering the years 2019-20 to 2022-23. Updating the website to the 2019-20 Budget figures is a major undertaking, and will be done if there is sufficient interest and resources available. For now, the 2018-19 figures remain a suitable basis for exploring a great many fiscal alternatives.
The Budget Test is not a test in the sense that there is a score, or a right or wrong answer. It simply asks: what would you change about Commonwealth taxation or expenditure?
Right now it covers the largest Commonwealth taxes – income tax, company tax, the goods and services tax, fuel excises, alcohol excises, tobacco excise and a number of smaller taxes. Together they represent 88% of all Commonwealth revenue. A smaller number of the Commonwealth’s largest expense items are included: payments to the States, the age pension, Defence, the Newstart/JobSeeker payment, foreign aid, infrastructure, and some small but contentious items such as the ABC and SBS. Together they represent about 35% of all Commonwealth expenses.
You can modify these in dozens of ways. You can change the basic parameters that drive the amount of tax collected - the rates of tax imposed, the thresholds at which the rates apply, and the coverage of the taxes. For example, should the goods and services tax apply to fresh food and health? Should smaller companies pay less tax than large ones? Should the top marginal rate of income tax be 35 cents in the dollar, 45 cents as now, or 65 cents in the dollar? And should the top marginal rate cut in at $100,000, $180,000 or $300,000? Should the Newstart/Jobseeker payment be increased? Should spending on foreign aid or the ABC be decreased? Should a Budget Repair Levy be reintroduced? The choice is yours. The results are given.
You can revert any model back to the parameters applying in Budget 2018-19 by selecting the "Reset" button for any individual model. You can revert every model back to the Budget 2018-19 parameters by selecting the "Reset All" button on the top left of the page displaying the selection of models. Beware! This means you will loose all of the results you have generated to that point
There are also a number of alternative Commonwealth taxes that could be introduced. At present these are an Internet Download Tax and an Inter-Generational Transfer Tax. It is planned to add others, such as a Minimum Income Tax, a Sugar Tax, an Electric Car Tax and to look at more changes to existing taxes such as the Capital Gains Tax and negative gearing arrangements. It is hoped that more can be added in time. You may even have suggestions.
Don’t get too carried away. The sorts of things that are modelled here are the big changes that move hundreds of millions of dollars – after all, those are the sorts of changes that are needed to improve the sustainability of Commonwealth finances or to drive major social changes. Removing GST from tampons , or adding it to smoothie fruit packs is not going to make a whit of difference to financial outcomes, even though important principles of tax policy may well be at stake.
Of course many would argue – and I would mostly agree – that the first port of call in any tax reform exercise is to look again at Commonwealth expenditure.
That is true, and it will be one of the next steps in developing the Budget Test. But it is also a much more complex and time consuming and expensive exercise. Work is already underway and if you want that work to go faster consider making a donation or offering your expertise to help.
But whether you are looking at taxes or expenditures what this website will not do is make claims about taxes or expenditures that are not grounded in real world data, or count revenues or expenditure savings that actually represent unfunded shifts of responsibilities between the Commonwealth, the States and local government. Or assume that ‘tax gaps’ can be magically closed. Or apply arbitrary ‘efficiency dividends’ that are neither efficient nor dividends able to be paid out of profits. Magic does not happen here. Hard choices are on the table, for all to see and debate.
Assuming – wishing, really – that things will be better than they are is a trap many are prone to – including in governments the world over. Assuming is not analysis, and wishing is not policy development. If you wish to complain that my analysis is too conservative, go ahead. It will not change. There will be no ‘magic asterisk’* in this site.
You can do some pretty wild things in the Budget Test, which is fine, but if you are serious you need to find solutions that have at least a chance of getting up in the Parliament and the court of public opinion.
A very important point to note. The Budget Test shows the first order impacts of the changes you choose to make, and it summarises those changes to give you your final Budget result. Real life, real economies and real budgets are vastly more complex. Increasing income tax reduces take home pay, which reduces spending and therefore GST receipts. Lowering company tax lowers imputation credits, which increases income tax collections. Increasing taxes on fuels means less will be consumed, and less fuel related GST will be collected. Extending the GST to cover education will reduce the demand for private schooling and therefore the Commonwealth’s expenditure on education in private schools – but it will also increase the Commonwealth’s – and the States’ - expenditure on public education. The Budget Test does not attempt to model these consequential impacts – but it does highlight them as considerations you need to keep in mind. Complexity is not a reason for giving up, or for not thinking clearly about consequences.
The model results are considered robust for estates up to $5 million in value. Beyond that the results are increasingly unreliable and will underestimate the amount tax that could be collected. This reflects the relatively poor data available on the distribution and magnitude of high-wealth households in Australia.
It is hard. It can nevertheless be done. And done fairly. I have my own solutions, but it is important that you devise your own, and join the community discussion about what reforms should be preferred and why. So, off you go.
*The 'magic asterisk' is an infamous Budget device devised by David Stockman, President Ronald Reagan's first Director of the Office of Management and Budget. It denotes a budget saving that is included in the budget bottom line, but which has not been identified, defined or costed. Stockman's memoir "The Triumph of Politics" ought be required reading for any modern Finance Minister.