The Great Australian Tax Debate
The current economic debate in Australian political circles is “how to fix the deficit”. Australia’s deficit as a percentage of GDP is small compared with other OECD countries. But after years of reliance on overpriced commodity exports to China, the country should be in a better position than it is. Read more on the Australian economy here.
The current government is remarkably unpopular and is therefore unlikely to introduce any meaningful spending reductions in next month’s budget. This is a pity, as Australia has one of the developed world’s most bloated political and bureaucratic sectors.
In a nation of around 25 million people we have a Federal House of Representatives and a Senate. And so does every state. This is absurd, when you realise that the biggest state has a population of only 7.5 million. A former Prime Minister referred to members of the Federal Senate as “unrepresentative swill”. They weren’t doing what he wanted at the time, but he did have a point.
Each state levies its own, substantial, taxes, over and above federal taxes. In addition, there are hundreds of tiny local governments all taxing and spending.
But the political answer is MORE TAX. In preparation for more tax, the electorate is being softened by arguments such as: “Australian Federal Revenue is low by OECD standards”.
This may be so, but it does not include the entirety of the multi-level tax system in Australia. I shall now provide a little, mostly anecdotal, information on a select few Australian taxes. For reference, the AUD/USD at the time of writing is 0.77.
Personal and corporate income tax rates are among the highest in the world. The top personal rate is 49% and the corporate rate is 30%.
- Successful self-employed people naturally look to incorporate. But the ATO (Australian Tax Office) considers that cheating. Paying more tax is more important than growing the economy.
- Multinational corporations are being harassed by the Left for “not paying their share”. But of course Australia is so small that they could leave altogether and barely notice a bottom line difference. Australians would notice though.
The fringe benefits tax is designed to collect a tax on non-cash payment to employees.
- Your boss takes you to lunch in return for a job well done. You must pay tax on that lunch -the rate is 47%.
The luxury car tax was introduced by the Left, envious of success. It cuts in at a car price of $60,000, at a rate of 33%. It is on top of GST tax (see below).
- For example, the price of a car that costs $150,000, say, will include around $50,000 in various government taxes, mostly the luxury car tax.
Australia is big on sin taxes.
- A single cigarette costs around $1.00, virtually all of which is tax. If Australians weren’t so law abiding, this would be a great black-market opportunity.
- A bottle of low end vodka costs upwards of $30.00 for 700ml (a pint).
When a business employs people, it has to pay a state payroll tax. The rate varies, but is around 5-6% of wages paid with a threshold of around $500,000.
- So you grow your company, employ more people, and then pay the bureaucrats for creating employment.
Local governments love parking fines.
- I was fined for parking perpendicular to the curb, but nose first rather than tail first. This was in a marked bay, with no signs nearby. There was no apparent reason for the regulation, but it cost me (and others) $267, nonetheless.
Finally, GST (goods and service tax) is levied on virtually everything in Australia. And it can have taxes piled on top, as mentioned above. It is currently 10% and will be one of the victims of the coming tax increases.
Australia is a high tax, low productivity, law abiding country. There are some good aspects to the country, but it looks like the economy will continue to weaken. I suspect that it will become more unattractive to business in the years ahead.