An economic comparison

Australia, whose total tax revenue has traditionally hovered around the 30% of GDP range, has a current population estimated by the ABS of 21,753,286 people. In 2007/08 the total GDP of Australia was $1,131,billion. The total tax take was $349 billion dollars.

 

Let’s contrast Australia with Israel. First of all, Australia is a country that is 180 years older than Israel, and has a (natural resource rich) land mass approximately 371 times larger than that of Israel, and a population 3 times that of Israel. The size of Israel’s GDP ($US 201 billion) is approximately quarter that of Israel.

 

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In per capital terms for 2007, the GDP per Capita of Australia was $A37,300 and in Israel it was $US31,767.

That’s not so far apart, and especially considering the cost of the security burden that is carried by the Israeli taxpayers (and its opportunity cost with respect to economic growth), the two countries have a number of comparable economic indicators. It has long been recognised that both Israel and Australia have much to learn from each other when it comes to economic management.

 

Australia is approaching Government budget season. The media have already set us up for some bad news, but the questions are many. Confidence is waning in the ability of the treasury economists to forward estimate. When they build scenarios and predictive modelling on the basis of a worst case situation, they could easily overestimate the extent of the economic decline. Just today the labour figures show an increase in employment, which is a mixed message.

Then we have the economic stimulus payments, that we will be paying back for decades, combined with a decline in tax revenue, an increase in Government overheads for social services, and some serious mixed messages from analysts to contend with.

It was only a couple of years ago (bring back Costello, all is forgiven….) that we were told that a decrease in the tax rates would stimulate growth and therefore lead to an increase in the amount of revenue collected. This may be the optimum economic equation, but it would seem we are now being told (he can Swan off anytime) that we need to increase tax rates to bring in more tax revenue. Surely the Government can’t have it both ways.

If there was ever proof needed that the economy runs the Government, and not vice-versa, we are seeing it in our dramatically fluctuating economic environment.

It would certainly be worth a forum and economic exchange between Israel and Australia to compare the strategies engaged by the Reserve Banks, and the fiscal and monetary controls being used to contain inflation, increase employment, and foster economic growth. In particular, the management of Israel’s economy under the guidance of Stanley Fischer has delivered impressive results, including the use of foreign currency reserves as a lever to influence the exchange rate of the shekel. Australia is missing out on valuable opportunities by not learning about this and other measures used to navigate a comparatively small economy (serving a population with a high quality lifestyle) through a global economic recession.

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