ALS: thoughts on freedom

The rising cost of Federal government

Getting a handle on the cost of government is not a trivial exercise. There are dead weight costs associated with unnecessary regulations, imposts on our time such as waiting in queues to deal with officials or the more tangible costs such as taxation. And of course there are multiple layers to contend with such as local, state and federal government each driven by varying objectives and using somewhat different means. One of the reasons why we might want to understand the cost of government is to work out if we are getting a good deal or not. If services are the benefit of government we might hope that we are over time getting more benefit at less cost or at least at no more cost than we paid previously.

In this article I wish to explore just one narrow aspect of this cost equation which is the price we pay for our Federal Government and the trend over the recent past (roughly covering the period of the Howard government). By necessity this will be an inexact simplification but hopefully it is not too far wide of the mark. It should be noted up front that the other two layers of government have been left out for simplicity and not because the amounts are not significant.

I have looked at two fiscal years for this exercise with the raw data used provided at the end of this article. The first is 1996 and the second is 2005. I am interested in the cost per capita in real inflation adjusted terms so I grossed up the 1996 figures to make them comparable to 2005. After making these two adjustments we have total tax revenue figures as follows:-

1996 adjusted: Tax revenue of $175307 million dollars ($8474 per capita) with 53% of this coming from personal income tax.

2005 adjusted: Tax revenue of $206832 million dollars ($9998 per capita) with 55% of this coming from personal income tax.

These numbers tell us that after accounting for population and inflation our Federal Government now costs us 18% more than it did a decade ago. So we might then ask is the service on offer 18% better than it was a decade ago? Looking at it another way, for the same level of service we might have reasonably expected personal income taxation to have been reduced by a third.   

Now of course it might be argued that public servants also deserve to share in the nations prosperity and that this increase in cost covers the wages necessary to attract the right talent. However weighed against that argument is the notion that technology such as IT and in particular the Internet should have allowed some productivity improvements. But perhaps even more significantly is that the 2005 figures provided exclude GST revenue whilst the 1996 figure includes those Federal taxes that the GST abolished. As such the picture painted is more genereous to the Federal government than perhaps it should be.

RAW DATA:- 

1996-97

Federal Tax Revenue = $124363 million

Personal Income Tax Revenue = $65940 million

Population = 18.5 million

CPI = 120.5 as at March 1997

2005-06 

Federal Tax Revenue = $206832 million

Personal Income Tax Revenue = $114431 million

Population = 20687539 as at 31 March 2006

CPI = 151.9 as at March 2006

Sources: ABS, RBA, Federal Budgets

October 24, 2006 - Posted by TerjeP (say tay-a) | Economics