Newly appointed Treasurer Scott Morrison has declared that Australia has a spending problem, not a revenue problem.

The claim: Treasurer Scott Morrison says that there are "eight in 10 income taxpayers required to go to work every day to pay for the $154 billion social services bill".

Treasurer Scott Morrison says that there are "eight in 10 income taxpayers required to go to work every day to pay for the $154 billion social services bill". The verdict: In 2015, tax paid by fewer than the top five out of 10 income taxpayers is sufficient to fund Australia's social services bill. Furthermore, social services are paid from the consolidated revenue fund, which comprises all taxes raised by the Federal Government, with personal income tax providing just under half the total. Mr Morrison's claim is misleading.

Mr Morrison told ABC's 7.30 that while revenue as a proportion of GDP was within long-term averages, spending is at peak levels not seen since the Global Financial Crisis.

He illustrated the extent of Australia's spending problem by saying that most income taxpayers work every day to fund social services in Australia.

Mr Morrison claimed that there are "eight out of 10 income taxpayers required to go to work every day to pay for the $154 billion social services bill".

ABC Fact Check investigates.

Social services and income tax

The basis for Mr Morrison's comment about the size of the social services bill can be found in the overview of the 2015-16 federal budget.

The budget estimates that spending on social security and welfare in the year to June 2016 will be $154 billion.

The same document forecasts that total income tax receipts will be $194 billion in the year to June 2016.

A simple comparison of these two figures shows that spending on welfare is expected to equal approximately 80 per cent of income tax revenue this financial year.

However, this analysis assumes that income tax is the only form of government revenue.

One big pot of money

The 2009 tax review headed by Ken Henry said that Australians pay at least 99 Federal Government taxes.

The 2015-16 budget overview says tax revenue is expected to total $405 billion in the year to June 2016.

At $194 billion, income tax represents 48 per cent of that figure.

Other major revenue contributors are company and resource rent taxes (18 per cent) and sales tax (15 per cent).

Section 81 of the Australian Constitution says that all revenue raised by the federal government shall be collected to a single fund, called the consolidated revenue fund.

Charles Lawson of Griffith University told Fact Check that the Constitution requires "all revenues raised by the government enter the consolidated revenue fund".

Professor Lawson's 2011 book on federal government powers explains that the Constitution also requires the Parliament to pass an "appropriation law" to withdraw any money from the fund.

A bills digest for 2015 budget legislation published by the Parliamentary Library says that "all money received by the Commonwealth must be paid into the CRF, and must not be spent before there is an appropriation authorising specific expenditure".

But in rare cases the government uses revenue from a specified tax - this is called hypothecation.

In the 2014-15 budget speech then treasurer Joe Hockey announced that revenue from the re-indexed fuel excise "would be linked by law to the roads budget".

A 2000 research paper by the Parliamentary Library explains that "hypothecation is the earmarking of the revenue from a particular tax for spending on a particular purpose".

Hypothecation is a different way in which Parliament can appropriate money from the consolidated revenue fund.

Professor Lawson's book explains that hypothecation creates a "special account ... within the consolidated revenue fund ... [which] allows an identified amount of money to be set aside and spent for specific purposes".

Welfare spending

Almost all social services payments are funded from the general consolidated revenue fund, not by hypothecation.

The 2015 portfolio budget statement for the Department of Social Services shows that about $131 billion - about 85 per cent of total social services spending - comes from so-called "special appropriations".

The document explains this is funding for a specific purpose for a number of years, meaning the government does not need to introduce a new appropriation law each year to pay for social services and welfare.

Special appropriations are drawn from the consolidated revenue fund.

The portfolio statement also shows about $10 billion is funded from this year's annual appropriation.

It says less than $500 million in social services funding is from a "special account", one which allows funding from a particular source to be earmarked for a particular purpose.

A progressive tax system

The 2009 Henry tax review explained that income tax in Australia raises "proportionally more revenue from those who have a greater capacity to pay".

This is known as a progressive income tax system.

Australia has five tax brackets, each with a different income range and a different rate of tax.





Income tax brackets 2015-16 Taxable income Tax on this income 0 – $18,200 Tax free threshold $18,201 – $37,000 19c for each $1 over $18,200 $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000 $180,001 and over $54,547 plus 45c for each $1 over $180,000 Source: Australian Tax Office

People earning below $18,200 pay no income tax, whilst the highest bracket taxes people $54,547 plus 45 cents for every dollar of income above $180,000.

The substantial difference in tax rates means that higher income earners pay far more of the total income tax collected in Australia than lower income earners.

The Australian Taxation Office's Income Tax Statistics for 2012-13, the latest available, show that the highest 3 per cent of income earners – those in the top tax bracket – paid 28 per cent of all income tax collected.

The next highest 16 per cent – those in the second top tax bracket – paid 39 per cent of all income tax collected.

Mr Morrison's claim relates to income taxpayers, not income earners, so assessing his claim requires excluding people whose annual income was below the tax-free threshold of $18,200.

The ATO statistics show that in 2012-13, out of every 100 people who filed tax returns, 26 paid no tax.

Of the 74 out of 100 who did pay tax, the 4 per cent on the highest incomes paid 27 per cent of all tax collected.

The next 8 per cent paid 20 per cent of the tax, the next 41 per cent paid 42 per cent of the tax and the 47 per cent earning the least paid 11 per cent of the tax.

Ben Phillips, principal research fellow at the National Centre for Social and Economic Modelling at the University of Canberra (NATSEM), told Fact Check that the assertion that eight out of 10 income taxpayers were required to work each day to pay Australia's social services bill was incorrect based on available income tax data.

Mr Phillips told Fact Check that based on NATSEM modelling for 2015, "the top five per cent of taxpayers alone pay approximately 25 per cent of all personal income taxation".

Further, "the top 42 per cent of taxpayers pay approximately 74 per cent of income tax receipts, and 63 per cent of taxpayers pay 90 per cent of receipts".

Paying the social services bill

Sorry, this video has expired Watch John Barron present the facts.

Based on the ATO statistics, the dollar amount of income tax paid by the top 53 per cent of taxpayers in 2012-13 was $138 billion, slightly more than that year's spending on social security and welfare of $132 billion.

In other words, the tax paid by just over the top five in 10 income earners was sufficient to pay the social services bill.

NATSEM's more up-to-date modelling shows that the tax paid by fewer than the top five in 10 income earners in 2015 is sufficient to pay this year's social security and welfare bill.

The verdict

Mr Morrison's claim that eight out of 10 income taxpayers are required to go to work every day to pay for social services ignores the progressive nature of Australia's income tax system.

In 2015, tax paid by fewer than the top five out of 10 income taxpayers is sufficient to fund Australia's social services bill.

Further, Mr Morrison's claim implies that social services payments are funded by income tax revenue alone.

Social services are paid from the consolidated revenue fund, which comprises all taxes raised by the Federal Government, with personal income tax providing just under half the total.

Mr Morrison's claim is misleading.



Sources