Superannuation does not change the story significantly. So claims we have very high shares of personal income taxes are only part of the picture. On this measure, Australia’s direct tax burden is the 11th lowest in the OECD. The important point here is that wedge data include both what employers pay as mandatory private payments and as mandatory payments into government social security. Combining mandatory paymentsĪ tax wedge is the ratio between the amount of taxes paid by an average worker (assumed to be single without dependents) and the corresponding total labour cost for the employer. Some say Australia’s compulsory superannuation scheme, in which employers pay 10.5% of an employee’s wage as super, should be counted in these tax measures, because it is similar to social security contributions in other countries.ġ2 other OECD countries have mandatory employer-paid private pension schemes.Įmployers pay this money directly into private accounts, not to the government, so it doesn’t meet the definition of a tax.īut for argument’s sake we can factor in super payments using “ tax wedge” data. In fact, if we add together personal income taxes and social security contributions, then Australia, rather than having the second-highest share of income taxes in the OECD, has the eighth-lowest. Though employers also pay social security taxes, evidence suggests about two-thirds of these are effectively paid by employees through lower wages. They are generally collected the same way, and counted as direct taxes on households or individuals in income surveys. These account for an average 25.9% of total tax revenue, or close to 9% of GDP, across the OECD.Įmployee social security contributions are very similar to income taxes. The other 35 OECD nations levy specific taxes on employers and employees to fund social security systems (unemployment support, age and disability pensions etc) The main reason Australia ranks so highly on individual income tax levels is because Australians don’t pay separate social security taxes.Īustralia, New Zealand and Denmark fund social security from general government revenue. That makes Australia the 29th lowest-taxing nation of the OECD’s 38 members. Overall, Australia’s level of taxation, measured as a proportion of GDP, is relatively low – 27.7% to the OECD average of 33.4%. In fact, it has ranked second or third in 36 of the past 40 years, and fourth in the other four years, swapping places with New Zealand and the United States. In 2019, the most recent year for which the OECD has complete statistics, Australia ranked second among OECD members on personal income tax as a share of total taxes. The AFR says this:Ĭreates tax-penalty work disincentives that partly explain New Zealand’s approximately 5% higher rate of workforce participation than Australia.Īre these issues really a problem? If there is a case for tax reform, what sort of reform? High individual income tax New Zealanders pay 10.5% on their first NZ$14,000 (then 17.5% up to NZ$48,000), while Australians enjoy a tax-free threshold up to A$18,200. Perhaps even more stinging is that the AFR considers New Zealand to have a better income-tax system. Too heavy reliance on taxing productive workers and business earnings blunts incentives to work, save and invest. The Australian Financial Review’s economics editor, John Kehoe, for example, has noted:Īustralians are paying more personal income tax as a share of government revenue than any other advanced economy, except for the high-taxing Scandinavian welfare state of Denmark.Īnd the day after the federal election, the AFR editorialised: Australians pay too much income tax – or so some argue.
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