Economic Sustainability
#23Key Findings
Australia scores relatively poorly (rank 23) in the area of economic sustainability.
The government has committed to circular-economy policies, but progress is slow. Efforts to improve infrastructure have not filled gaps left by past underinvestment.
Unemployment rates are low, and employment rates high. Labor market institutions have not yet fully aligned with new demands, leaving labor shortages in some sectors. Labor market risk is addressed largely through high employment rates, not state-led protection policies.
Taxes are low as a share of GDP as compared to the OECD average. There is a strong reliance on income taxes, with low consumption taxes and little tax on land or wealth. The government posted a balanced budget in 2023, but warned that deficits would return in future years.
The government has committed to circular-economy policies, but progress is slow. Efforts to improve infrastructure have not filled gaps left by past underinvestment.
Unemployment rates are low, and employment rates high. Labor market institutions have not yet fully aligned with new demands, leaving labor shortages in some sectors. Labor market risk is addressed largely through high employment rates, not state-led protection policies.
Taxes are low as a share of GDP as compared to the OECD average. There is a strong reliance on income taxes, with low consumption taxes and little tax on land or wealth. The government posted a balanced budget in 2023, but warned that deficits would return in future years.
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How committed is the government to driving the transition toward a circular economy?
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The government is clearly committed to transitioning to a circular economy.
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The government is largely committed to transitioning to a circular economy.
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The government is somewhat committed to transitioning to a circular economy.
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The government is not at all committed to transitioning to a circular economy.
The government has developed framework documents expressing Australia’s commitment to developing a circular economy (CE) (DCCEW 2023). It has also led discussions with the private sector to support this objective. Thus, the official position and contributions are consistent with a strong commitment to transitioning to a CE. However, progress toward this goal has been slow, falling short of the aspirations outlined in the framework documents. A recent report (Ghafoor et al. 2023) provides evidence that the uptake of CE principles has been low. This can be attributed to a lack of incentives, specific regulations, and knowledge. These shortcomings highlight weaknesses not only in the dissemination of CE policies and ideas but also in the tools and mechanisms (i.e., incentives) introduced to support CE.
Citations:
DCCEEW. 2023. “Transitioning to a More Circular Economy.”Australian Government Department of Climate Change, Energy, the Environment and Water. https://www.dcceew.gov.au/environment/protection/circular-economy
Ghafoor, S., Shooshtarian, S., King, D. K., Bonsey, J., Garofano, N. T., Reza Hosseini, M., Arnel, T., and Kocaturk, T. 2023. Unlocking the Power of Circular Economy in the Australian AEC Industry: A Journey Through Attitudes, Barriers, and Enablers. Geelong: Deakin University. https://nla.gov.au/nla.obj-3176691560/view
Citations:
DCCEEW. 2023. “Transitioning to a More Circular Economy.”Australian Government Department of Climate Change, Energy, the Environment and Water. https://www.dcceew.gov.au/environment/protection/circular-economy
Ghafoor, S., Shooshtarian, S., King, D. K., Bonsey, J., Garofano, N. T., Reza Hosseini, M., Arnel, T., and Kocaturk, T. 2023. Unlocking the Power of Circular Economy in the Australian AEC Industry: A Journey Through Attitudes, Barriers, and Enablers. Geelong: Deakin University. https://nla.gov.au/nla.obj-3176691560/view
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How committed is the government to updating and protecting critical infrastructure?
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The government is clearly committed to updating basic technical infrastructure.
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The government is largely committed to updating basic technical infrastructure.
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The government is somewhat committed to updating basic technical infrastructure.
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The government is not at all committed to updating basic technical infrastructure.
For many years until the last decade, there was chronic underinvestment by Australian governments in critical infrastructure. Over the past decade, governments at both federal and state/territory levels have expressed strong commitments to increasing and updating infrastructure in fields such as transport and communication. Despite these efforts, infrastructure remains inadequate due to previous neglect. Additionally, financing these projects remains an ongoing challenge. Typically, the federal government partners with state governments and other stakeholders to fund major infrastructure projects. However, even these joint funding efforts have been insufficient to achieve the ambitious plans set forth by the governments. A recent independent review of over 250 major infrastructure projects nationwide, commissioned by the federal government, recommended that 82 of these projects be scrapped (Grattan 2023). The federal government has indicated it will follow the review’s recommendations. However, state governments, such as the Government of Western Australia, have suggested they may try to find ways to follow through on all their infrastructure commitments (WA Government 2023). A key driver for a comprehensive review has been the cost overruns of several large-scale projects, particularly in major cities like Sydney and Melbourne.
Citations:
Grattan, M. 2023. “Infrastructure Review Recommends Culling 82 Planned Projects.” The Conversation November 16. https://theconversation.com/infrastructure-review-recommends-culling-82-planned-projects-217805
WA Government. 2023. “State Government Affirms Commitment to Projects Following Federal Government Infrastructure Review.” Government of Western Australia. https://www.wa.gov.au/government/media-statements/Cook-Labor-Government/State-Government-affirms-commitment-to-projects-following-Federal-Government-infrastructure-review-20231116
Citations:
Grattan, M. 2023. “Infrastructure Review Recommends Culling 82 Planned Projects.” The Conversation November 16. https://theconversation.com/infrastructure-review-recommends-culling-82-planned-projects-217805
WA Government. 2023. “State Government Affirms Commitment to Projects Following Federal Government Infrastructure Review.” Government of Western Australia. https://www.wa.gov.au/government/media-statements/Cook-Labor-Government/State-Government-affirms-commitment-to-projects-following-Federal-Government-infrastructure-review-20231116
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How committed is the government to fully decarbonizing the energy system by 2050?
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The government is clearly committed to transitioning to a decarbonized energy system.
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The government is largely committed to transitioning to a decarbonized energy system.
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The government is somewhat committed to transitioning to a decarbonized energy system.
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The government is not at all committed to transitioning to a decarbonized energy system.
The Australian government has committed to transitioning the economy to net-zero emissions by 2050. This plan emphasizes the critical role of technological breakthroughs and commits to investing in “priority technologies” that build on Australia’s competitive advantages and significantly reduce emissions (Australian Government 2021). Central to the plan is the commitment to “ultra-low emissions electricity generation.” Electricity generation, responsible for approximately 34% of the country’s total emissions in 2019, is seen as key to environmental solutions for other sectors such as transport and buildings. According to government modeling, a substantial increase in renewable sources, driven by declining technology costs and substantial financial support, will drive down emissions in energy production to near-zero by 2050. Projections estimate that the share of energy production from renewables will rise from 23% in 2020 to 61% by 2030.
To address the challenge of reducing emissions to zero in some sectors, the plan identifies offset projects that involve investments in projects that draw carbon from the atmosphere and store it in vegetation and soil. The plan also aims to be adaptive and flexible, regularly refined in light of emerging technologies, changing practices, and the impact of the transition on various communities and regions.
In tandem to the new program, the Australian government has created the Climate Active partnership with Australian businesses to promote voluntary climate action. Climate Active issues certificates to businesses and other organizations (e.g., schools and universities) that reach net-zero emissions, providing incentives for these organizations to measure and reduce their emissions and informing their clients, customers, and stakeholders about their commitment to sustainability.
Critics of the plan point to its heavy reliance on technologies that are not yet widely available, suggesting that the net-zero commitment is not fully practical (Climate Council 2022). They argue that the pace of change needs to be faster, given the increasing frequency and intensity of climate crises in Australia and the environmental challenges facing several countries in the Asia-Pacific region. Suggested actions to accelerate the transition include strengthening laws underpinning the transition to a zero-emission economy, ending government support for fossil fuel extraction, supporting the expansion of green jobs, and ending land clearing and restoring degraded forests.
Citations:
Climate Council. 2023. “What the Climate Bill Is and What It’s Not.” https://www.climatecouncil.org.au/what-the-climate-bill-is-and-what-its-not/
Australian Government. 2021. “Australia’s Whole-of-Economy Long-Term Emissions Reduction Plan.” Australian Government Department of Industry, Science, Energy and Resources. https://www.dcceew.gov.au/sites/default/files/documents/australias-long-term-emissions-reduction-plan.pdf
To address the challenge of reducing emissions to zero in some sectors, the plan identifies offset projects that involve investments in projects that draw carbon from the atmosphere and store it in vegetation and soil. The plan also aims to be adaptive and flexible, regularly refined in light of emerging technologies, changing practices, and the impact of the transition on various communities and regions.
In tandem to the new program, the Australian government has created the Climate Active partnership with Australian businesses to promote voluntary climate action. Climate Active issues certificates to businesses and other organizations (e.g., schools and universities) that reach net-zero emissions, providing incentives for these organizations to measure and reduce their emissions and informing their clients, customers, and stakeholders about their commitment to sustainability.
Critics of the plan point to its heavy reliance on technologies that are not yet widely available, suggesting that the net-zero commitment is not fully practical (Climate Council 2022). They argue that the pace of change needs to be faster, given the increasing frequency and intensity of climate crises in Australia and the environmental challenges facing several countries in the Asia-Pacific region. Suggested actions to accelerate the transition include strengthening laws underpinning the transition to a zero-emission economy, ending government support for fossil fuel extraction, supporting the expansion of green jobs, and ending land clearing and restoring degraded forests.
Citations:
Climate Council. 2023. “What the Climate Bill Is and What It’s Not.” https://www.climatecouncil.org.au/what-the-climate-bill-is-and-what-its-not/
Australian Government. 2021. “Australia’s Whole-of-Economy Long-Term Emissions Reduction Plan.” Australian Government Department of Industry, Science, Energy and Resources. https://www.dcceew.gov.au/sites/default/files/documents/australias-long-term-emissions-reduction-plan.pdf
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To what extent do existing labor market institutions support or hinder the transition to an adaptive labor market?
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Labor market institutions are fully aligned with the goal of an adaptable labor market.
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Labor market institutions are largely aligned with the goal of an adaptable labor market.
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Labor market institutions are only somewhat aligned with the goal of an adaptable labor market.
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Labor market institutions are not at all aligned with the goal of an adaptable labor market.
The Australian government envisions a dynamic labor market providing good jobs (well-paid, safe, and secure) and responsive to a changing economy. Due to technology and policy settings, the current Australian labor market is more flexible than in the past. The government has identified several forces of change shaping labor market conditions: population aging, rising demand for quality care and support services, expanded use of digital technologies, climate change and the economic transformation it demands, and geopolitical risks. While policies have been developed to address these challenges, the government acknowledges that current labor market institutions are not fully aligned with the changing context’s requirements (Australian Government 2023). For example, there are critical workforce shortages in care and support services, and particular challenges facing regional labor markets. Immigration of workers with critical skills has been an important aspect of labor market management, disrupted during the pandemic when the country closed its international borders. The economy is still recovering and realigning post-COVID, resulting in critical shortages in industries that rely heavily on immigrant workers (Read 2023).
An important feature of the Australian labor market is its minimum wages, which are set by an independent statutory authority, the Fair Work Commission. The national minimum wage is approximately 45% of the median full-time wage. More importantly, many industry- and occupation-specific minimum wages can be substantially higher than the national minimum wage. Minimum wages have been growing faster than average wages in recent years. For example, in July 2023, the minimum wage was increased by 8.6% to AUD 23.23 per hour, compared with average annual wage growth of 3.9%. Higher growth in minimum wages might constrain employment, although there is little evidence of this; as recently as December 2023, the unemployment rate remained below 4%
There are no broad-based government policies that explicitly seek to impact on reskilling or upskilling of workers. However, the country’s public programs and subsidies for education and training arguably have a positive impact . Immigration policy arguably adversely impacts firm incentives to invest in domestic worker training, as they can obtain workers with requisite skills via sponsoring immigrants through temporary and permanent skilled migration programs.
The existing institutional and regulatory environment does not help firms absorb short-term economic shocks through short-time work schemes, but at the same time there are few impediments to firms using these schemes. Employment agencies in Australia generally help facilitate worker mobility, but their impact is not large.
Citations:
Australian Government. 2023. “Skills Shortage Update.” https://www.jobsandskills.gov.au/publications/skills-shortage-quarterly-march-2023https://www.dewr.gov.au/skills-and-training/announcements/labour-market-update
Read, M. 2023. “Skilled migration only for jobs paying more than $90k, unions urge ALP.” Financial Review January 10. https://www.afr.com/politics/federal/unions-urge-labor-to-require-foreign-workers-earn-more-than-90k-20230110-p5cblr
An important feature of the Australian labor market is its minimum wages, which are set by an independent statutory authority, the Fair Work Commission. The national minimum wage is approximately 45% of the median full-time wage. More importantly, many industry- and occupation-specific minimum wages can be substantially higher than the national minimum wage. Minimum wages have been growing faster than average wages in recent years. For example, in July 2023, the minimum wage was increased by 8.6% to AUD 23.23 per hour, compared with average annual wage growth of 3.9%. Higher growth in minimum wages might constrain employment, although there is little evidence of this; as recently as December 2023, the unemployment rate remained below 4%
There are no broad-based government policies that explicitly seek to impact on reskilling or upskilling of workers. However, the country’s public programs and subsidies for education and training arguably have a positive impact . Immigration policy arguably adversely impacts firm incentives to invest in domestic worker training, as they can obtain workers with requisite skills via sponsoring immigrants through temporary and permanent skilled migration programs.
The existing institutional and regulatory environment does not help firms absorb short-term economic shocks through short-time work schemes, but at the same time there are few impediments to firms using these schemes. Employment agencies in Australia generally help facilitate worker mobility, but their impact is not large.
Citations:
Australian Government. 2023. “Skills Shortage Update.” https://www.jobsandskills.gov.au/publications/skills-shortage-quarterly-march-2023https://www.dewr.gov.au/skills-and-training/announcements/labour-market-update
Read, M. 2023. “Skilled migration only for jobs paying more than $90k, unions urge ALP.” Financial Review January 10. https://www.afr.com/politics/federal/unions-urge-labor-to-require-foreign-workers-earn-more-than-90k-20230110-p5cblr
To what extent do existing labor market institutions support or hinder the transition to an inclusive labor market?
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Labor market institutions are fully aligned with the goal of an inclusive labor market.
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Labor market institutions are largely aligned with the goal of an inclusive labor market.
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Labor market institutions are only somewhat aligned with the goal of an inclusive labor market.
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Labor market institutions are not at all aligned with the goal of an inclusive labor market.
Australia has a set of labor market policies in areas such as unemployment, training, and childcare designed to sustain an inclusive and dynamic labor market (Productivity Commission 2023). Means-testing and mutual obligation are important principles in this framework, informed by economic principles that emphasize calibrating incentives. While the overall performance of the labor market, especially low unemployment figures, suggests a high degree of success, policy settings in several areas may not be optimally aligned with the goal of creating an inclusive and dynamic labor market. The cost of childcare is an issue for many families, particularly impacting women. For many second-income earners in a family, there is little financial incentive to enter the labor force given the cost of childcare, additional taxation, and loss of benefits. The significant number of long-term unemployed suggests weaknesses in measures to integrate and support this cohort to re-enter the labor force (Hare 2023).
Despite these weaknesses, Australia is among the OECD countries with the highest employment-population rates, while earnings inequality is relatively low (OECD 2023). Together, these empirical features imply Australia has a policy environment conducive to an inclusive labor market.
Citations:
Productivity Commission. 2023. “5-Year Productivity Inquiry: A More Productive Labour Market (Inquiry Report – Volume 7).” Australian Government Productivity Commission. https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.pc.gov.au%2Finquiries%2Fcompleted%2Fproductivity%2Freport%2Fproductivity-volume7-labour-market.docx&wdOrigin=BROWSELINK
Hare, J. 2023. “Why have 40,000 people been on JobSeeker for 10, BCA asks.” Financial Review May 10. https://www.afr.com/politics/federal/why-have-40-000-people-been-on-jobseeker-for-10-years-bca-asks-20230510-p5d78v
OECD. 2023. OECD Employment Outlook. OECD. https://data.oecd.org/emp/employment-rate.htm
Despite these weaknesses, Australia is among the OECD countries with the highest employment-population rates, while earnings inequality is relatively low (OECD 2023). Together, these empirical features imply Australia has a policy environment conducive to an inclusive labor market.
Citations:
Productivity Commission. 2023. “5-Year Productivity Inquiry: A More Productive Labour Market (Inquiry Report – Volume 7).” Australian Government Productivity Commission. https://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Fwww.pc.gov.au%2Finquiries%2Fcompleted%2Fproductivity%2Freport%2Fproductivity-volume7-labour-market.docx&wdOrigin=BROWSELINK
Hare, J. 2023. “Why have 40,000 people been on JobSeeker for 10, BCA asks.” Financial Review May 10. https://www.afr.com/politics/federal/why-have-40-000-people-been-on-jobseeker-for-10-years-bca-asks-20230510-p5d78v
OECD. 2023. OECD Employment Outlook. OECD. https://data.oecd.org/emp/employment-rate.htm
To what extent do existing labor market institutions support or hinder the mitigation of labor market risks?
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Labor market institutions are fully aligned with the goal of protecting individuals against labor market risks.
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Labor market institutions are largely aligned with the goal of protecting individuals against labor market risks.
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Labor market institutions are only somewhat aligned with the goal of protecting individuals against labor market risks.
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Labor market institutions are not at all aligned with the goal of protecting individuals against labor market risks.
There is a strongly held belief among Australian policymakers that the best way to manage risk is to ensure a high level of employment, rather than developing policies to directly protect individuals against labor market risks. A low-unemployment economy benefits workers who would otherwise face high risks of joblessness, including young workers, those with relatively low levels of education, and those in manual jobs. Australian governments have been mostly successful in implementing this approach (AIHW 2023). However, there remains a significant number of people who receive benefits as part of the JobSeeker program. Although there was a sharp increase in JobSeeker recipients during the pandemic, the number has decreased rapidly since then. However, those on JobSeeker remain on the program for longer than in the past, indicating difficulty in finding work (Ballantyne and Coates 2022).
Australia does not have a national unemployment insurance system, and relatively few workers are protected by unemployment insurance in the event of job loss. A flat-rate unemployment benefit with stringent income and assets tests is the only protection provided by the state. This means most workers have almost no protection against labor market risks. Protections provided by trade unions are confined to a relatively small proportion of the workforce. The portability of social rights is limited to private retirement savings, which are fully portable.
Citations:
AIHW. 2023. “Employment and Income Support Following the COVID-19 Pandemic.” https://www.aihw.gov.au/reports/australias-welfare/australias-welfare-2023-data-insights/contents/employment-income-support-following-pandemic
Ballantyne, A., and B. Coates. 2022. “When Unemployment Falls, Disadvantaged Workers Benefit Most.” The New Daily May 11. https://grattan.edu.au/news/when-unemployment-falls-disadvantaged-workers-benefit-most/
Australia does not have a national unemployment insurance system, and relatively few workers are protected by unemployment insurance in the event of job loss. A flat-rate unemployment benefit with stringent income and assets tests is the only protection provided by the state. This means most workers have almost no protection against labor market risks. Protections provided by trade unions are confined to a relatively small proportion of the workforce. The portability of social rights is limited to private retirement savings, which are fully portable.
Citations:
AIHW. 2023. “Employment and Income Support Following the COVID-19 Pandemic.” https://www.aihw.gov.au/reports/australias-welfare/australias-welfare-2023-data-insights/contents/employment-income-support-following-pandemic
Ballantyne, A., and B. Coates. 2022. “When Unemployment Falls, Disadvantaged Workers Benefit Most.” The New Daily May 11. https://grattan.edu.au/news/when-unemployment-falls-disadvantaged-workers-benefit-most/
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To what extent do existing tax institutions and procedures support or hinder adequate tax revenue flows?
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The tax system is fully aligned with the goals of ensuring adequate tax revenues.
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The tax system is largely aligned with the goals of ensuring adequate tax revenues.
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The tax system is only somewhat aligned with the goals of ensuring adequate tax revenues.
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The tax system is not at all aligned with the goals of ensuring adequate tax revenues.
Australian taxes as a proportion of GDP (29.5%) are relatively low compared to the OECD average (34.5%) (OECD 2023; Whiteford 2022). However, reliance on income taxes is relatively high, while consumption taxes are low, and wealth/land taxes are almost nonexistent. This over-reliance on income taxes is seen as a deficiency that results in inadequate revenue to meet expenditure needs and creates excessive disincentive effects for productive activity. This issue is increasingly exacerbated by a growing need to address policy challenges stemming from an aging population, climate change, and geopolitical risk.
The tax system is moderately effective in constraining global tax abuse. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population). There is much debate about the efficiency and equity of Australia’s tax profile, with commentators arguing that the country should consider raising more money by increasing taxes on mining and energy companies (Denniss 2022).
Citations:
Whiteford, P. 2022. “Do Australians pay too much income tax? 6 charts on how we rank against the rest of the world.” The Conversation. https://theconversation.com/do-australians-pay-too-much-income-tax-6-charts-on-how-we-rank-against-the-rest-of-the-world-185223
Denniss, R. 2022. “It’s Time to Tax Mining and Energy Giants Properly.” The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
OECD. 2023. Revenue Statistics 2023: Australia. https://www.oecd.org/tax/revenue-statistics-australia.pdf.
The tax system is moderately effective in constraining global tax abuse. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population). There is much debate about the efficiency and equity of Australia’s tax profile, with commentators arguing that the country should consider raising more money by increasing taxes on mining and energy companies (Denniss 2022).
Citations:
Whiteford, P. 2022. “Do Australians pay too much income tax? 6 charts on how we rank against the rest of the world.” The Conversation. https://theconversation.com/do-australians-pay-too-much-income-tax-6-charts-on-how-we-rank-against-the-rest-of-the-world-185223
Denniss, R. 2022. “It’s Time to Tax Mining and Energy Giants Properly.” The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
OECD. 2023. Revenue Statistics 2023: Australia. https://www.oecd.org/tax/revenue-statistics-australia.pdf.
To what extent do existing tax institutions and procedures consider equity aspects?
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The tax system is fully aligned with the goal of ensuring equity.
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The tax system is largely aligned with the goal of ensuring equity.
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The tax system is only somewhat aligned with the goal of ensuring equity.
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The tax system is not at all aligned with the goal of ensuring equity.
Australia raises a relatively high proportion of its taxation from income tax, and its income tax regime is more progressive than many other similar countries. Australia levies relatively low average and marginal tax rates at low income levels but relatively high marginal tax rates at high income levels (The Treasury 2023). Furthermore, while many other countries levy a social security contribution as effectively a flat-rate tax, Australia does not impose a separate social security contribution, with pensions funded from the main revenue stream, supplemented by private contributions. Compared to other resource-rich advanced economies, Australia imposes relatively low tax rates on its large and highly profitable mining and energy sector, which some commentators argue is inequitable because it results in a greater tax burden on other sectors (Denniss 2022).
Citations:
The Treasury. 2023. “Tax White Paper: At a Glance.” https://treasury.gov.au/review/tax-white-paper/at-a-glance.
Denniss, R. 2022. “It’s time to tax mining and energy giants properly.” The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits/
Citations:
The Treasury. 2023. “Tax White Paper: At a Glance.” https://treasury.gov.au/review/tax-white-paper/at-a-glance.
Denniss, R. 2022. “It’s time to tax mining and energy giants properly.” The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits/
To what extent do existing tax institutions and procedures minimize compliance and collection costs?
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The tax system is fully aligned with the goal of minimizing compliance and collection costs.
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The tax system is largely aligned with the goal of minimizing compliance and collection costs.
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The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
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The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
Despite the considerable complexity of the income tax system, compliance costs are relatively low for most taxpayers due to the use of electronic filing, with income from most sources, including wages and salaries, interest, and dividends, now pre-populated. However, 70% of tax returns are still lodged by a tax agent, likely due to the range of available deductions and the difficulty for ordinary people to determine their entitled deductions.
There have also been concerns about compliance and transparency in the Australian tax system. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population).
The Australian government recently passed a law to improve corporate tax transparency and compliance (Leigh 2023). Its measures include stronger rules requiring corporations to reveal where their assets and activities are domiciled for taxation purposes and greater alignment between corporations’ activities and tax obligations.
In sum, while general levels of compliance are high, leakages are not trivial.
Citations:
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
Leigh, A. 2023. “Making multinationals pay their fair share – Integrity and Transparency Bill.” https://www.andrewleigh.com/making_multinationals_pay_their_fair_share_integrity_and_transparency_bill_2023
There have also been concerns about compliance and transparency in the Australian tax system. The Tax Justice Network (2023) estimates that approximately AUD 3.8 billion is lost in tax revenue every year due to tax abuse by corporations and individuals, equating to 0.9% of the country’s tax revenue (or AUD 152 per capita of the Australian population).
The Australian government recently passed a law to improve corporate tax transparency and compliance (Leigh 2023). Its measures include stronger rules requiring corporations to reveal where their assets and activities are domiciled for taxation purposes and greater alignment between corporations’ activities and tax obligations.
In sum, while general levels of compliance are high, leakages are not trivial.
Citations:
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
Leigh, A. 2023. “Making multinationals pay their fair share – Integrity and Transparency Bill.” https://www.andrewleigh.com/making_multinationals_pay_their_fair_share_integrity_and_transparency_bill_2023
To what extent do existing tax institutions and procedures internalize negative and positive externalities?
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The tax system is fully aligned with the goal of internalizing externalities.
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The tax system is largely aligned with the goal of internalizing externalities.
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The tax system is only somewhat aligned with the goal of internalizing externalities.
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1
The tax system is not at all aligned with the goal of internalizing externalities.
The Australian taxation system has been criticized for its low taxation of the high-polluting mining and energy sectors (Denniss 2022). Furthermore, recent Australian governments have been reluctant to use the tax system to advance progress toward environmental goals, following a short-lived experiment with a carbon tax (2012-14) during the government led by Julia Gillard, which was immediately abandoned by her successor as prime minister, Tony Abbott. Recent research (Rajabi 2023) demonstrates that a carbon tax could be both economically and environmentally effective in Australia.
More broadly, there is relatively little built into the Australian taxation system to internalize externalities, with notable exceptions being excise taxes on tobacco, alcohol, and motor vehicle fuel. However, in the case of motor vehicle fuel, the rationale is raising revenue for road building and maintenance rather than addressing externalities, since farmers and miners using vehicles that do not use public roads are entitled to rebates on fuel excises. The exemption of fresh food, healthcare, and education from the goods and services tax, and large subsidies for health care and education, can also be interpreted as improving incentives to undertake activities with positive externalities.
Citations:
Denniss, R. 2022. “It’s Time to Tax Mining and Energy Giants Properly.”The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits
Rajabi, M.M. 2023. “A carbon tax can have economic, not just environmental benefits for Australia.” The Conversation. https://theconversation.com/a-carbon-tax-can-have-economic-not-just-environmental-benefits-for-australia-210380
More broadly, there is relatively little built into the Australian taxation system to internalize externalities, with notable exceptions being excise taxes on tobacco, alcohol, and motor vehicle fuel. However, in the case of motor vehicle fuel, the rationale is raising revenue for road building and maintenance rather than addressing externalities, since farmers and miners using vehicles that do not use public roads are entitled to rebates on fuel excises. The exemption of fresh food, healthcare, and education from the goods and services tax, and large subsidies for health care and education, can also be interpreted as improving incentives to undertake activities with positive externalities.
Citations:
Denniss, R. 2022. “It’s Time to Tax Mining and Energy Giants Properly.”The Australia Institute. https://australiainstitute.org.au/post/its-time-to-tax-mining-and-energy-giants-properly-struggling-australians-should-share-in-their-record-profits
Rajabi, M.M. 2023. “A carbon tax can have economic, not just environmental benefits for Australia.” The Conversation. https://theconversation.com/a-carbon-tax-can-have-economic-not-just-environmental-benefits-for-australia-210380
Graph View
To what extent do existing budgetary institutions and procedures support or hinder sustainable budgeting?
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9
9
Budgetary institutions and policies are fully aligned with the goals of sustainable budgeting.
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7
6
7
6
Budgetary institutions and policies are largely aligned with the goals of sustainable budgeting.
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3
4
3
Budgetary institutions and policies are only somewhat aligned with the goals of sustainable budgeting.
2
1
1
Budgetary institutions and policies are not at all aligned with the goals of sustainable budgeting.
Australian governments have grappled with the benefits and disadvantages of budgeting rules versus flexibility (Di Francesco 2016). The previous Liberal-National Coalition Government adopted a 23.9% cap on federal tax revenue as a share of GDP, but this has not been maintained by the current Labor government. In practice, the health and sustainability of public budgets have depended critically on the underlying performance of the economy. In recent years, the national budget has been challenged by the Global Recession of 2008 and its aftermath and massive spending required to sustain economic (and other) organizations during the pandemic. In 2023, the Australian government forecast the nation’s first balanced budget in 15 years but warned of pressures due to inflation (and other challenges) that would likely push the budget back into debt in the near future (Al Jazeera 2023).
One promising trend in public budgeting has been improvements in the transparency of Australian budgets, as measured by the Open Budget Survey (Stewart and Wong 2020). This survey focuses on the adequacy of oversight arrangements, public access to relevant information, and opportunities for citizen engagement, providing some sense of whether resources are effectively and accountably used. In the most recent survey, Australia scored 79 out of 100, an improvement on its performance two years ago when it scored 74. Australia ranks below New Zealand, Norway, and Sweden, but ahead of several economic peers, including the United States, United Kingdom, France, and Canada.
Also conducive to sustainable budgeting at the federal level is the requirement for the Treasury to produce Intergenerational Reports, which offer long-term projections of the economy and the commonwealth budget (Treasury 2023). The first report was produced in 2002, and a total of six reports have been published since then. Shortly after taking office in 2022, the Labor government increased the frequency of these reports to every two years.
At the state level, budget sustainability is more uneven, particularly over recent years when the impact of the COVID pandemic varied across states. Victoria, in particular, now faces a precarious fiscal position due to substantial debt incurred during the pandemic and commitments to expensive infrastructure projects (PBO 2023).
Citations:
Di Francesco, M. 2016. “Rules and Flexibility in Public Budgeting: The Case of Budget Modernisation in Australia.” Australian Journal of Public Administration 75 (2): 236-248. https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-8500.12156
Stewart, M., and T.C. Wong. 2020. “Open Budgets in the Time of Covid-19.” Asia & The Pacific Policy Society. https://www.policyforum.net/open-budgets-covid-19/
Al Jazeera. 2023. “Australia Flags First Annual Budget Surplus in 15 Years.” Al Jazeera May 9. https://www.aljazeera.com/economy/2023/5/9/australia-flags-first-annual-budget-surplus-in-15-years
The Treasury. 2023. 2023 Intergenerational Report. The Treasury, Australian Government. https://treasury.gov.au/intergenerational-report
PBO. 2023. “Budget Snapshot 2023-24.” Victorian Parliamentary Budget Office. https://pbo.vic.gov.au/document/BudgetUpdateSnapshot2023-24
One promising trend in public budgeting has been improvements in the transparency of Australian budgets, as measured by the Open Budget Survey (Stewart and Wong 2020). This survey focuses on the adequacy of oversight arrangements, public access to relevant information, and opportunities for citizen engagement, providing some sense of whether resources are effectively and accountably used. In the most recent survey, Australia scored 79 out of 100, an improvement on its performance two years ago when it scored 74. Australia ranks below New Zealand, Norway, and Sweden, but ahead of several economic peers, including the United States, United Kingdom, France, and Canada.
Also conducive to sustainable budgeting at the federal level is the requirement for the Treasury to produce Intergenerational Reports, which offer long-term projections of the economy and the commonwealth budget (Treasury 2023). The first report was produced in 2002, and a total of six reports have been published since then. Shortly after taking office in 2022, the Labor government increased the frequency of these reports to every two years.
At the state level, budget sustainability is more uneven, particularly over recent years when the impact of the COVID pandemic varied across states. Victoria, in particular, now faces a precarious fiscal position due to substantial debt incurred during the pandemic and commitments to expensive infrastructure projects (PBO 2023).
Citations:
Di Francesco, M. 2016. “Rules and Flexibility in Public Budgeting: The Case of Budget Modernisation in Australia.” Australian Journal of Public Administration 75 (2): 236-248. https://onlinelibrary.wiley.com/doi/epdf/10.1111/1467-8500.12156
Stewart, M., and T.C. Wong. 2020. “Open Budgets in the Time of Covid-19.” Asia & The Pacific Policy Society. https://www.policyforum.net/open-budgets-covid-19/
Al Jazeera. 2023. “Australia Flags First Annual Budget Surplus in 15 Years.” Al Jazeera May 9. https://www.aljazeera.com/economy/2023/5/9/australia-flags-first-annual-budget-surplus-in-15-years
The Treasury. 2023. 2023 Intergenerational Report. The Treasury, Australian Government. https://treasury.gov.au/intergenerational-report
PBO. 2023. “Budget Snapshot 2023-24.” Victorian Parliamentary Budget Office. https://pbo.vic.gov.au/document/BudgetUpdateSnapshot2023-24
Graph View
How committed is the government to utilizing research and innovation as drivers for the transition to a sustainable economy and society?
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The government is clearly committed to utilizing research and innovation as drivers for the transition to a sustainable economy and society.
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7
6
The government is largely committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
5
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3
4
3
The government is somewhat committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
2
1
1
The government is not at all committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
The government has expressed its commitment to innovation to advance its climate goals, but this has not been matched by concrete policies and outcomes. Since 2021, the government has released Low Emissions Technology Statements (LETS) as part of a roadmap to achieve net-zero emissions by 2050 (Commonwealth of Australia 2021). The LETS is a key policy document in this effort, outlining the technology-reliant path to net zero and aligning with government funding plans while signaling to private sector investors. Five priority technologies were identified in the first LETS, released in 2020: clean hydrogen production, improvements in energy (electricity) storage, low emissions materials production (particularly steel and aluminum), reducing the cost of carbon capture and storage, and reducing the cost of soil carbon measurement. The most recent LETS, released in 2021, added ultra low-cost solar power to the list of technology priorities.
However, the LETS initiative’s focus on technology highlights the multiple meanings of innovation in the Australian context. Some approaches emphasize technology, while others focus on culture. Commentators (Lewis and Mikolajczak 2023) argue that these diverse approaches indicate a lack of coherence in thinking and policymaking around innovation. Australia has cited innovation as key to reducing greenhouse gas emissions. While there has been progress in some sectors, reforming laws and incentives could stimulate greater innovation in support of Australia’s net-zero target (Dean et al. 2023).
Citations:
Commonwealth of Australia. 2021. Low Emissions Technology Statement. Australian Government Department of Industry, Science, Energy and Resources. https://www.dcceew.gov.au/sites/default/files/documents/low-emissions-technology-statement-2021.pdf
Lewis, J.M. and Mikolajczak, G. 2023. “Policy Innovation in Australia: Divergence in Definitions, Problems, and Solutions.” Australian Journal of Public Administration 82 (1): 26-45. https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8500.12575
Dean, A., Hutley, N., Flannery, T., Morgan, W., Bradshaw, S., Rayner, J., Hanrahan, D. 2023. “Australia’s Clean Industry Future: Making Things Here in a Net-Zero World.” https://www.climatecouncil.org.au/resources/australias-clean-industry-future-making-things-in-a-net-zero-world/
However, the LETS initiative’s focus on technology highlights the multiple meanings of innovation in the Australian context. Some approaches emphasize technology, while others focus on culture. Commentators (Lewis and Mikolajczak 2023) argue that these diverse approaches indicate a lack of coherence in thinking and policymaking around innovation. Australia has cited innovation as key to reducing greenhouse gas emissions. While there has been progress in some sectors, reforming laws and incentives could stimulate greater innovation in support of Australia’s net-zero target (Dean et al. 2023).
Citations:
Commonwealth of Australia. 2021. Low Emissions Technology Statement. Australian Government Department of Industry, Science, Energy and Resources. https://www.dcceew.gov.au/sites/default/files/documents/low-emissions-technology-statement-2021.pdf
Lewis, J.M. and Mikolajczak, G. 2023. “Policy Innovation in Australia: Divergence in Definitions, Problems, and Solutions.” Australian Journal of Public Administration 82 (1): 26-45. https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8500.12575
Dean, A., Hutley, N., Flannery, T., Morgan, W., Bradshaw, S., Rayner, J., Hanrahan, D. 2023. “Australia’s Clean Industry Future: Making Things Here in a Net-Zero World.” https://www.climatecouncil.org.au/resources/australias-clean-industry-future-making-things-in-a-net-zero-world/
Graph View
How committed and credible is the government in its activities to guide the effective regulation and supervision of the international financial architecture?
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The government is clearly committed to ensuring the stability of the global financial system.
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The government is largely committed to ensuring the stability of the global financial system.
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The government is somewhat committed to ensuring the stability of the global financial system.
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The government is not at all committed to ensuring the stability of the global financial system.
As a globally oriented country with a high degree of international economic and financial market integration, Australia has a strong interest in promoting a stable, efficient, and transparent international financial system. The government displays a strong commitment to preventing criminal financial activities, including tax evasion, through information-sharing arrangements with numerous countries (The Treasury 2023). Australia has also developed and implemented agreements to combat high-risk international financial activities posing systemic risks.
The country loses substantial potential tax revenues from abusive tax practices (see “Policies Targeting Adequate Tax Revenue” and “Policies Aimed at Minimizing Compliance Costs”). Recently, the government has introduced measures to tighten obligations around taxation transparency in corporate affairs (PWC 2023) and supports a proposal to levy a “global minimum tax” of 15% on large Australian or foreign-owned companies with subsidiaries in low- or no-tax countries (Sadiq and Krever 2023).
Citations:
The Treasury. 2023. “Income Tax Treaties.” https://treasury.gov.au/tax-treaties/income-tax-treaties
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
https://taxjustice.net/country-profiles/australia
PWC. 2023. “Proposed New Tax Transparency Measures for Public Companies.” https://www.pwc.com.au/tax-alerts/proposed-new-tax-transparency-measures-for-public-companies.html
Sadiq, K. and R. Krever. 2023. “Why Taxing the World’s Biggest Companies at 15% Won’t Fix the Gaping Hole in Global Tax Rules.” The Conversation. https://theconversation.com/why-taxing-the-worlds-biggest-companies-at-15-wont-fix-the-gaping-hole-in-global-tax-rules-206400
The country loses substantial potential tax revenues from abusive tax practices (see “Policies Targeting Adequate Tax Revenue” and “Policies Aimed at Minimizing Compliance Costs”). Recently, the government has introduced measures to tighten obligations around taxation transparency in corporate affairs (PWC 2023) and supports a proposal to levy a “global minimum tax” of 15% on large Australian or foreign-owned companies with subsidiaries in low- or no-tax countries (Sadiq and Krever 2023).
Citations:
The Treasury. 2023. “Income Tax Treaties.” https://treasury.gov.au/tax-treaties/income-tax-treaties
Tax Justice Network. 2023. “Country Profiles: Australia.” https://taxjustice.net/country-profiles/australia/
https://taxjustice.net/country-profiles/australia
PWC. 2023. “Proposed New Tax Transparency Measures for Public Companies.” https://www.pwc.com.au/tax-alerts/proposed-new-tax-transparency-measures-for-public-companies.html
Sadiq, K. and R. Krever. 2023. “Why Taxing the World’s Biggest Companies at 15% Won’t Fix the Gaping Hole in Global Tax Rules.” The Conversation. https://theconversation.com/why-taxing-the-worlds-biggest-companies-at-15-wont-fix-the-gaping-hole-in-global-tax-rules-206400