Is Australia a high or a low taxed country?

High or low is a relative measure. So if we compare ourselves to the Saudis we are a high taxed country but if we compare ourselves to the scandinavians we are in easy street.

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The economist tell me we should compare ourselves to the OECD and when we do we are low taxed – http://www.oecd.org/tax/tax-revenues-continue-to-rise-across-the-oecd.htm.

The percentage of the tax take to GDP in Australia is 26.5% and across the OECD is 33.1%. Open and shut case? Maybe not.

When you look at the breakdown of what taxes make up these revenues one thing stands out.

Australia has higher income, profit, payroll and land taxes. Also, its indirect taxes are similar (10% v 7%). So how can Australia have a higher tax to GDP rate? The only tax, that makes almost all of the difference between Australia and the OECD is social security taxes. Of the 33.1% for the OECD, 9.1% is social security taxes. In Australia’s 26.5% there are no social security taxes.

And we know why. The Australian government decided that rather than collecting taxes to pay pensions they decided to force us to save for our own. Now just because OECD governments say they will use these social security taxes for social security payments (the nerdy term is hypotheticated taxes) does not mean they will – but if you took out these taxes Australia stars to look like a heavily taxed country (OECD 24% to Australia 26.1%).

But social security taxes are used for both unemployment and retirement assistance so you can’t say it is all covered by the Australian Super Guarantee system. If we assume 2.1% of the 9.1% is for things like unemployment (made up by me to get an answer) then Australia is exactly the same as the OECD average.

So is Australia a high or low taxed jurisdiction? NO. It is just right. So can we get on with cutting expenditure soon…

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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