Heavy tax burdens drag down economic performance | Institute of Public Affairs Australia

Julie Novak from the Institute of Public Affairs has this great piece on how heavy tax burdens drag down economic performance:
An overwhelming number of cross-country studies over the past decade that accommodate econometric innovations and richer data sets, and which often include Australia in the empirical coverage, have found that a larger public sector is associated with slower economic growth rates.

For example, Andreas Bergh and Martin Karlsson in 2010 undertook a study of 29 OECD countries showing a negative correlation between government size and growth, controlling for economic freedom and globalisation. In the same year two European Central Bank researchers, Antonio Afonso and Davide Furceri, took samples of OECD and EU countries to find, in their own words, that 'total revenue and total expenditure seem to impinge negatively on the real growth of per capita GDP.'

There are countless other peer-reviewed studies which demonstrate that relatively larger public sectors tend to economically bite the hand they feed from...

Politicians of all persuasions, and it seems Treasurer Wayne Swan is among them, often forget that increasing tax rates after a certain threshold will provide less revenue to the government due to Laffer curve effects, and are thus routinely frustrated when their grand taxing schemes do not come to expected revenue collection fruition.

More generally, the heavier the taxation burden the greater the economic distortions imposed upon the economy, as market participants seek alternative, sometimes lower value added, activities to escape the tax burden. ..

Australians should think carefully about the electoral policy choices on offer and very carefully scrutinise big-spending ticket items, such as the NDIS and Gonski, which risk rendering citizens poorer in the long run.

What is most disappointing however is that there remains a need to spell out something as bleeding obvious as this. The fact that when taxes increase, the economy suffers is so overwhelmingly obvious, with such an abundance of evidence, that anyone who doubts it should be dismissed as a crank.

And yet, our taxpayer funds still go to promoting crackpot tax & spend ideas on websites like The Drum...

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