It's not a good time to be the taxman. The poor chap has fallen on hard times. But if you think that sounds like good news, you haven't thought it through. We don't pay taxes for fun and the government doesn't tear up our money when it receives it. Obviously, it's used to pay for all the services governments provide.
It's now clear how much trouble the Europeans have brought on themselves by ignoring the two sides of their budgets. It's equally clear a big part of the reason we don't share the Europeans' predicament is the acceptance by our governments - federal and state, Labor and Coalition - over many years that their spending and their tax collections must be kept in balance over time.
So if tax collections are falling short of spending, it follows that either spending must be cut or taxes increased. At present, governments are willing to contemplate only spending cuts, and are working on the theory there's enough inefficiency in the public sector to reduce costs without significantly reducing the services it delivers.
But you can push that relatively politically painless idea only so far. And the problems with tax collections are so deep-seated eventually they - and we - will have to face the terrifying prospect of higher taxes.
The federal government has structural problems with income tax, capital gains tax and company tax, but the tax with the biggest problems is the goods and services tax, as was well explained this week in the NSW government's budget papers, which I'll draw on.
When John Howard introduced the GST in July 2000, he neutralised opposition from the premiers by promising them all the proceeds from the tax in place of the feds' former general revenue grants. So GST is a federally controlled and collected tax that benefits only the states.
It's divided between them according to the principle of "horizontal fiscal equalisation", which aims to ensure each state and territory has the fiscal capacity to provide the national average standard of services and infrastructure.
This means the GST proceeds are divided in a way that ensures those states with greater capacity to raise revenue subsidise those with lesser revenue-raising capacity.
For decades this meant taxpayers in Victoria and NSW subsidised taxpayers in all other states. Since 2008-09, however, the resources boom has left the governments of Queensland and, particularly, Western Australia so flush with mining royalties they too have become subsidisers of the remaining states and territories. So, of late, NSW and Victoria haven't had to subsidise the others nearly as much.
When Howard first handed the proceeds of GST to the states, it seemed clear he'd given them the fabulous "growth tax" they'd long dreamt of. Up to 2007-08, collections grew at an average rate of more than 8 per cent a year - faster than the economy (nominal gross domestic product) was growing.
But every time the federal Treasury peers into the future it revises down its projections for growth in GST receipts. It's now expecting growth over the period from 2008-09 to 2015-16 to be just 4.5 per cent a year.
So what's the problem? Well, there are a couple. The first is that, during the 30 years in which Australian households were progressively lowering their rate of saving, their consumer spending on goods and services was (as a matter of simple arithmetic - the formula is: consumption plus saving equals income) growing faster than household disposable income.
But from about mid-2003 households began increasing their rate of saving, and after the global financial crisis in late 2008 they really got down to it. Obviously, while the rate of saving is increasing consumer spending will be growing more slowly than income.
So it's clear the GST captured only the final few years of the outsized growth in consumer spending. In its first year, 2000-01, consumer spending accounted for 59 per cent of nominal GDP. By 2007-08 it had fallen to 56 per cent and by 2010-11, 54 per cent.
But for the past 18 months the net household saving rate has been roughly steady at about 9.5 per cent of household disposable income, meaning consumer spending has been growing at much the same rate as household income. If the household saving rate has stabilised, consumer spending will continue falling as a proportion of GDP only if household disposable income grows at a slower rate than GDP, which doesn't seem likely.
But that's just the first reason the joy has come out of GST as a great little revenue raiser (of an expected $48 billion in the coming financial year, or 3.2 per cent of GDP).
Although we tend to think of GST as a tax on the purchase of all goods and services, in fact a significant slice of the value of our purchases (initially, about 36 per cent) is exempt from the tax. Our spending on rent, health and education were excluded because taxing them accurately was judged too hard. Then spending on food was excluded as part of the deal needed to get the tax passed by the Senate.
Fine. What's happened since then is, although the volume (quantity) of our purchases of these exempt items has grown pretty much in line with the volume of taxable items, the prices of the exempt items have consistently grown faster than prices of the taxable items.
So much so that over the tax's first 11 years, the value (price times volume) of taxable consumption relative to total private consumption has fallen about 4 percentage points.
Since health and education are "superior goods" (we spend an increasing proportion of our income on them as our incomes rise), and costs in both areas grow significantly faster than other consumer prices, we can expect this erosion of the GST tax base to keep rolling on.
At first blush, the feds can dismiss this as the premiers' problem. But the states are so dependent on GST revenue (in NSW's case, to the tune of a quarter of total revenue) and are so restricted by the constitution in what they may tax that, in the end, it's a problem for Canberra.
And since we know from successive intergenerational reports that most of the pressure on federal and state budgets over the next 40 years will come from health spending, the lasting solution is staring us in the face: the GST's tax base must be broadened at least to include private spending on education and health.
