The government should be aiming to lower the taxation burden, not increase it
Here begins the sermon. And like all sermons, the material can be dry. But sometimes it is worth persisting because the -messages are important. There is no such thing as government spending. There is spending of current taxpayers' money. And when the government decides to run up debt (as this government is wont to do as much as the previous Labor government), it is future taxpayers' money that is being used.
And here's the thing: taxation involves real economic costs in terms of deterring work effort, investment and savings. Economists refer to this impact as the excess burden or the deadweight costs of taxation. It is measured by estimating the loss of economic activity, per dollar of revenue raised, associated with particular taxes. The costliest taxes are royalties, company income tax, conveyancing stamp duties and progressive labour -income taxes.
If we look at the estimates provided in the 2010 Henry tax review and leaving aside the implausible figure on royalties, we find that the marginal welfare loss (yet another term for excess burden) of company income tax is above 40 per cent, of conveyancing stamp duties just below 40 per cent and of labour income tax about 25 per cent. These figures compare with a 10 per cent marginal welfare loss associated with the GST. 
(Some ill-informed commentators have quoted a recent Treasury paper that provides further estimates of the excess burden of various taxes. On the face of it, labour income tax appears to impose similar costs to the GST. But what is modelled in that paper is a flat rate of income tax, not our progressive arrangement. A flat rate of income tax is very similar to a GST but, of course, no one is talking about having a 15 per cent, say, across-the-board income tax.) Some economics graduates may show off by mentioning Pigo-vian taxes, otherwise known as sin taxes. The ostensible aim of these taxes is to reduce the consumption of the taxed good or service in question: tobacco, alcohol, gambling are examples. The trouble with Pigovian taxes in practice is that there is generally no alignment between the real cost to society of the overconsumption of these goods and ser-vices (which are legal, by the way) and the amount of taxation (excise) levied. Tobacco excise in Australia raises more than $8 billion a year, a figure that is expected to rise in the coming years. And if Labor has its way, the rates of excise on tobacco will be lifted even higher again.
In fact, tobacco excise is a highly regressive form of taxation, hitting people on low incomes who smoke at higher rates than average, and raises more revenue than can be justified. And the taxation on alcohol is a joke because it is not consistently levied on an alcohol-volume basis - beer and particularly wine are much more lightly taxed than spirits.
So the first lesson is taxation is a drag on economic activity and some taxes are worse than others. While Pigovian taxes in theory may dissuade consumption of goods and services that are deemed to be bad, at least at the margin, their practical implementation is highly problematic.
Of course, the point of taxation is to raise revenue that then can be spent by governments for various purposes. Think defence, welfare payments, health, education, and the list goes on.
In this context it is worth revisiting Milton Friedman's famous four quadrants of spending to assess the likelihood that revenue is spent efficiently and effectively. The first quadrant is about people spending their own money on themselves. The second is people spending their own money on other people. The third is about spending other people's money on themselves. And the final one is spending other people's money on other people. There is a descending degree of care, in terms of meeting preferences of the recipients and achieving value for money, as we shift through the quadrants.
Governments spending taxpayers' money is a clear fourth quadrant example. While there is a variety of factors that motivate governments, one clear driving force is the desire to be re-elected. What this means is taxpayers' money will be directed to achieve this aim even if the spending is wasteful and benefits small numbers of people.
We have seen an alarming trend, which has accelerated under the Abbott-Turnbull government, towards the federal government using taxpayers' money for local projects, the funding of which should be the responsibility of local or state governments or, indeed, private individuals.
I have the misfortune of being Facebook friends with several federal politicians and they are always bragging about using taxpayers' money to fund the upgrade of some tiny local airport, fixing some local intersection or upgrading a local leisure centre.
This is pure pork-barrelling using other people's money. The people of Australia really have no particular interest in seeing the leisure centre in a salubrious part of Sydney improved.
These politicians seem to have forgotten the principle of subsidiarity (OK, most of them couldn't spell it), which dictates that matters ought to be managed and funded by the smallest (least centralised) competent authority. Moreover, federal taxes should be directed to federal ends, the benefits of which accrue to all Australians, not just a few voters who live in marginal electorates. (I'm leaving out the complication of vertical fiscal imbalance to keep things simple.) This is the second lesson: governments cannot be trusted to spend taxpayers' money sensibly, in terms of securing value for money or ensuring the benefits are widely spread.
The third topic I want to cover is whether Australia is really a low-tax country, as many left-wing commentators would have us believe. The clear inferences are that we can impose even higher taxes without worrying too much and that many of us should be happy to pay more. The trouble with these inter-country comparisons is manifold. But let me get to the nub of the problem: apples are being compared with oranges. One of the main issues is the inclusion of social insurance contributions in the tax statistics in other countries but the exclusion of compulsory superannuation in ours.
Indeed, if we adjust for this difference, it turns out Australia is among the highest taxing countries in the world, particularly as the world is much more than the mainly broke OECD countries.
If we consider all levels of government, the tax take in Australia is about 40 per cent. At the federal level, receipts (which are overwhelmingly taxation) will account for about 24 per cent of gross domestic product this financial year, rising to 25.2 per cent in 2018-19. Bear in mind the figure at the end of the Whitlam government was only 22 per cent.Yes, we are a high-tax country, with a huge dependence on personal income and company tax. To be sure, consumption tax accounts for a relatively low proportion of GDP. But if you look at most countries with high consumption taxes, we should be running a mile, not copying them. So the final lesson is that Australia is a high-tax country and we should be aiming to lower the tax burden, not increase it.