Other countries are regularly repaying public debt accumulated during the global financial crisis and the COVID pandemic. Australia should also, as Alan Austin reports.
NEW TREASURER Jim Chalmers is well aware of Australia’s horrendous debt.
Asked about the economic problems inherited from the new Labor government, Chalmers replied:
“The defining challenges to our economy are skyrocketing inflation, rising interest rates, falling real wages and not having enough to show for a budget that is absolutely heavy with a trillion dollars of Liberal Party debt.”
The Real Debt Disaster
The day before the election, May 20, 2022, Australia gross debt was $888.5 billion. It rose through June to a new high of $893.2 billion, then hit a new high in July of $895.2 billion. That’s just $271.7 billion in September 2013, when the Coalition won government on the to promise to drastically reduce the debt.
The Last of the Coalition Budget forecasts that the debt will reach a trillion dollars in 2023-24.
According to the latest monthly report from the Department of Finance, Australia will pay $18,462 million in interest on this debt. That’s $2,743 for every Australian household. Every year.
It is wealth not available for essential expenses, such as support for those currently unable to work due to COVID restrictions.
Last Friday, Treasure reported that gross debt had been reduced by $18.7 billion, to $874.5 billion. In one week. Is it the result of intentional government action or just a fluctuation, however large? (We asked the Treasurer, who was on his way to Indonesia at the time. If he answers, we’ll post it in the discussion below.)
Strategies to reduce this debt
Treasurer Chalmers met with G20 finance ministers and central bank governors from Indonesia last Friday and Saturday. On the agenda were debt sustainability and the importance of ensuring that multinationals pay their fair share of taxes.
The Albanian government could start repaying the debt by immediately instructing the australian tax office recover the taxes evaded by multinationals over the past decade. It would not break any election promises. Albanese and Chalmers have always said that they would not introduce new taxes but that they reform multinational tax evasion and evasion.
Companies have to pay
In the boom years between The global financial crisis and the COVID recession, several countries took advantage of the surge in corporate profits and increased the rate of Business Taxation. Other countries have done the opposite, reducing the rate to give businesses an even larger share of their national income.
Australia did not adjust the corporate tax rate, but effectively reduced contributions paid by the corporate sector by allowing widespread corporate tax avoidance. This is calculated each year by the tax office transparency report.
Taiwan increased its corporate tax rate by 3% in 2018. Its budget deficit improved by 0.7% of GDP from 2017 to 2019 (pre-COVID). Public debt was reduced by 1.6% of GDP.
Taiwan unemployment rate has been below 3.8% most of the time since 2018. Productivity has skyrockets, hitting an all-time high of 147.2 index points in February. Most other indicators were equally commendable.
Latvia, formerly Soviet State in Eastern Europe, increase its corporate tax rate in 2018 from 15% where it was for the previous 16 years to 20%. Its economy was then booming. Its unemployment rate improved from 8.5% to 7.0% in 2018. It then fell to 6.0% in pre-COVID 2019. Now 7.3% post-COVID. During the same period, wages went from around €670 (AU$1,000) per month to well over €800 (AU$1,194). Now an impressive €1,011 (AU$1,509).
Slovenia increased its corporate tax rate by 2% in 2017. Its budget deficit improved by 0.5% of GDP from 2017 to 2019. Public debt was reduced by 8.6% of GDP. It can be done.
Countries that have reduced corporate tax rates
In contrast, the United States slashed the rate fell from 35% to 21% at the end of 2017. Its budget deficit worsened by 1.2% of GDP from 2017 to 2019. Public debt exploded by $2.7 trillion, or 2.2% of GDP.
India cut its corporate tax rate from 34.6% to 25.2% in 2019. Since then, its deficits have worsened and its public debt has increased.
Other countries that have reduced corporate tax rates and avoided an explosion in public debt or other disastrous consequences include Spain, Israel, Sweden, Argentina and the UK.
It is time
Despite current concerns about inflation, food shortages, and new variants of COVID, the global economy is quite buoyant. All 38 OECD countries are experiencing strong positive annual GDP growth. Almost all, including Australia, now have unemployment rates at or near record highs.
Of the 30 OECD member countries that reported gross public debt at the end of 2021, 23 reduced it during the year. Italy and Belgium reduced it by more than 4% of gross domestic product (GDP), Denmark and Slovenia by more than 5%. Portugal reduced its debt by an impressive 7.8% of GDP and Greece by 13%.
Australia hasn’t released an official report yet, but we know its debt soufflé disastrously last year – by 47.8 billion dollars.
Now is the perfect time for a new administration to collect corporate taxes at the required level assess by 30% – no rate hike necessary – and reduce debt. If Greece and Portugal can, so can Australia.
Alan Austin is an Australian freelance columnist and freelance journalist. You can follow him on Twitter @alanaustin001.
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