Date posted: 8/05/2018

Feeling rich, but unloved after Budget night?

How Australia's top personal tax rate compares internationally

The Federal Budget contains a seven year plan to reduce the personal tax of Australia’s biggest contributors to Canberra’s coffers.

But don’t spend the money just yet says Michael Croker, Australian Tax Leader at Chartered Accountants Australia and New Zealand.

“Tax cuts need to be legislated and the Coalition must work with the Senate to get laws passed,” Croker said.

“There will likely be two Federal Elections before 1 July 2024”.

"Even if enacted, L-A-W tax cuts can easily be scuttled, as happened in 1993.”

“Initial indications are that Labor’s support for the cuts announced by Treasurer Scott Morrison in the Federal Budget is conditional on restricting the benefits to those in the low to middle income tax brackets.”

Want to compare Australia’s top personal tax rate with other countries?

Have a look at the OECD’s tax rate database1 , noting how the top tax threshold is expressed as a multiple of average wages.

“Comparisons with other countries are notoriously difficult because of different approaches to social security payments, the impact of state or local taxes and, in some countries like the USA, the availability of joint (spousal) rates. The indirect tax burden also needs to be factored into living costs.

“Australia’s top personal tax rate is on the high side both in terms of the rate and the income level at which it applies.

“Currently, our 47% rate (includes Medicare levy) applies after taxable income exceeds $180,000. The Coalition wants this top rate to apply to taxable incomes above $200,000 from 1 July 2024. Labor has flagged a 49% top rate if elected.”

Want to work in the USA? Donald Trump’s tax reforms now have individual, single taxpayers paying just 37% to the federal government once taxable income hits USD $500,0002.

Excited by the prospect of working in London post-Brexit? You’re looking at 45% once taxable income exceeds £150,0003.

Across the Tasman, New Zealand’s top earners pay just 33%, but under a much flatter rate scale which sees this top rate apply from a comparatively low NZD$70,000 threshold4.

“Overlooked in the personal tax rate debate is the fact that not every business uses a company structure. Tax rates impact entrepreneurial behaviour.

“Sole traders and family partnerships pay tax at personal rates. Even where a company is used, dividends paid to shareholders attract “top-up” personal tax after allowing a credit for any income tax paid at company level.”

According to the latest ATO statistics5, 3.1% of Australia’s individual taxpayer population have a taxable income exceeding $180,000. They contribute 30.3% of personal taxes collected.

Those with taxable incomes between $80,000 and $180,000 are even bigger contributors (39.8%).

”It would be good now and again if politicians acknowledged this taxpayer segment and their contribution to the Australian community.

“In a global economy, where good skills are in high demand, let’s also hope our best and brightest don’t chose to work somewhere else.”

 

[1] Source: https://stats.oecd.org/index.aspx?DataSetCode=TABLE_I7

[2] Source: https://www.irs.gov/irb/2018-10_IRB#RR-2018-06

[3] Source: https://www.irs.gov/irb/2018-10_IRB#RR-2018-06

[4] Source: http://www.ird.govt.nz/how-to/taxrates-codes/rates/

[5] Source: https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2015-16/?anchor=info1#info1

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