Australian Government CrestInternational Comparison of Taxes

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2. The role of taxation in public finance

Summary

Communities face important choices about how particular goods and services should be provided. In broad terms, these choices can be private provision, regulation, or government provision. The choices have significant impacts on measures of the size of government expenditure or government revenue.

This report follows long-standing practices used by international organisations when making cross-country comparisons.

In 2003, Australia had the third lowest government expenditure as a proportion of GDP of 28 OECD countries (Mexico and Turkey do not provide comparable data) and the second lowest of the OECD-10.

The primary reason that Australia was the third lowest spending, yet eighth lowest taxing OECD country, is that many of the higher spending countries were running fiscal deficits in 2003.

The unweighted average fiscal deficit across the 28 OECD countries was 1.9 per cent of GDP. As the two largest economies in the OECD (the United States and Japan) have large fiscal deficits, the weighted average fiscal deficit in the OECD was 4.0 per cent of GDP.

2.1 Introduction

This chapter discusses the choices faced by governments and people about how to organise and manage key elements of their society and the economy. These choices are divided into three major categories for the purposes of discussion in this chapter — private provision, government regulation, and government expenditure programs funded by taxation revenue.

One of the three choices is to use government expenditure programs to deliver services funded primarily through taxation revenue. The chapter will outline the links between government expenditure and revenue, and some principles involved when considering tax policy design.

 

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