Your hunch is right: You are paying more tax

The Commonwealth’s annual tax take is in rude health and growing strongly.

The latest numbers released by the Australian Bureau of Statistics (ABS) reveal Australia’s overall taxation take has continued its post-pandemic recovery, again recording double-digit annual growth of 10.6% to $755.8 billion for the year 2022-2023, after surging 15.2% in the previous year.

There’s a few things at play, not least inflation and increased wages on the back of labour and skills shortages, but the Australian Taxation Office (ATO) is still well and truly raking it in despite a few recent multi-billion dollar scandals — like Operation Protego, the massive crackdown on GST refund fraud.

To put it bluntly, Australia’s tax take is in great condition, coming in at “29.5% as a percentage of GDP”, down just a smidge of 29.6% from the previous year.

The Commonwealth government did particularly well, posting a 12.3%  increase in tax revenue over the previous year. New South Wales only posted a 1.8% rise in its tax take; Queensland, 2.9%; and Victoria, 5.9%.

The Northern Territory went backwards, -3.5% in its tax take, the only jurisdiction to do so.

It was the same picture for tax revenue per person (capita), with the Commonwealth posting a neat 10.0% rise vs 4.8% in the Australian Capital Territory and -0.1% in NSW.

The figures indicate the ATO is set to make major progress on narrowing the so-called “Tax Gap”, or the difference between what ought to be collected and what actually is.

Australia’s overall tax gap spiked following COVID because the economy simply froze overnight and then had to be thawed out.

The net tax gap for 2020-2021 was 7.0%, or around $37 billion, one of the reasons the ATO wants to call in so-called “zombie debts” — debts owed by businesses that are really only still alive to avoid paying their tax bill on winding up.

While the urge to purge good or bad tax debt is understandable for budgeting and fiscal planning purposes, it still doesn’t address a key question as to when Australia reached nominal ‘peak’ tax efficiency.

That’s when the tax system has no more upside to extract in terms of boosting its take and then needs to maintain its velocity or risk going backwards.

A big part of that is cash and its role in the shadow economy. According to the Reserve Bank of Australia, the value of “banknotes in circulation reached $102.3 billion at the end of June 2022, equivalent to around 4.5% of nominal GDP.”

As COVID hit, people hoarded banknotes, briefly held them for about a year, and then let them go.

“Growth over 2021/22 was 7.2% marginally higher than its 10-year average, but below the growth rates seen during the pandemic in 2020 and 2021,” the most recent RBA assessment of banknotes says.

“Much of the increase in circulating banknotes during 2021/22 reflected a more subdued pace of banknotes being returned to the Reserve Bank, rather than additional banknote purchases. Overall, there were a little under 2 billion banknotes in circulation.”

The question is whether that last 4.5% of nominal GDP is from where the Treasury now wants to extract maximum efficiency, and what the consequences will be for businesses and services that traditionally discount for cash, for whatever reason.

In the still-to-be gentrified middle and outer suburbs of major cities, these are typically small-margin fresh food businesses like bakers, butchers and barbers.

The price differential is instructive.

At Woolies online, pak choi is between $2.50 and $5.50 a bunched pair; at an Asian grocer, it’s around $1.20 for a bunch of three.

The Woolies price for lamb mince is $14 per kilo; a suburban Halal butcher sells pre-made Kofte mix for the same price. Unseasoned lamb mince is $8-$9 per kilo, maybe $10 for extra-lean.

Seasonal produce that would be deemed unmerchantable by the big supermarkets — think cucumbers, zucchinis, tomatoes — still routinely sit below $5 per kilo.

This could soon change.