Put ten Australians in a room and ask them if they pay too much tax and you’re likely to find everyone agreeing, “why yes, I do pay too much tax.” None of us likes paying tax, but are we really paying too much? Here are three ways you can answer that question.
How much should we pay?
At the end of the day we need to pay enough tax to pay for the services we want. At the moment our budget is in the red and looks like staying there permanently unless we either cut services or increase taxes. Personally, I opt for the services, which means collectively we’re not paying enough tax.
How much tax do we pay compared to other high income nations?
It turns out that we pay very low taxes when we compare ourselves to other high income nations. The chart below shows the total tax revenues received by governments as a proportion of national income. As you can see, Australia is right down the lower end of the tax collected. So by this measure, no we are not paying too much tax.
Who should pay taxes?
Earlier this year the Australian Council of Social Services released a paper that shocked me. It showed the total proportion of income that households paid in tax. We’re accustomed to thinking that rich households pay a lot more as a proportion of their income than poor households. It turns out that that is not true. When you consider only income tax, yes the richer you are more you pay, although not nearly as much as people like to think. But when you add indirect taxes, such as the GST, taxes on tobacco, etc, it turns out the tax system is far more flat then we commonly believe. The top 20% of households paid a total of 28% of their income in tax and the bottom 20% of households pay almost as much, 24% of their income goes in tax.
That means that tax rates are roughly equal across Australian households, but that leaves them far from equitable. The top 20% of households live on an average of $2597 per week after tax. The bottom 20% get by on just $409 per week after tax.
So unless you’re in the bottom 20% of households by income lets get rid of the bleating that we pay too much tax.