If you’ve read often-touted figures that Australia is a low tax country but that claim doesn’t match your experience, you are probably right. New research explains why that might be the case.

Australia, the Organisation for Economic Co-operation and Development (OECD) tells us, comes in at number 29 out of 36 in the overall rate of tax, paying 28.5 per cent of GDP to the tax man. That puts us well below the OECD average of 34.3 per cent with the only Western countries paying less being the US, Switzerland and Ireland. 

But Australia also has the highest reliance on income and company tax in funding the overall tax take. And that, say some economists, means we ought to restructure our tax system, raising the GST and lowering income tax.

As the table below shows Australia’s income and company tax take accounts for 16.8 per cent of GDP, ahead of everyone but New Zealand which scored 17.8 per cent. But if measured against the share of total tax revenue, Australia outdoes the Kiwis with 58 per cent compared to 55.6 per cent putting Australia ahead in overall income tax take.

And unlike all other countries on the list in double figures, Australia has a higher reliance on income taxes now than it did back in 1975.That is despite the introduction of the goods and services tax in 2001 which increased our reliance on indirect taxes. 

Stephen Koukoulas, an independent economist, said the figures show that Australia needs significant tax reform. “We could increase the GST from 10 per cent to 15 per cent, not 12.5 per cent as some have said.”

“That would give us $40 billion to $50 billion extra in tax receipts. We could then cut the company tax rate to a more competitive 20 per cent,  the top marginal tax rate to 35 per cent and adjust the rates below that also,” Mr Koukoulas said.

“At the same time you could increase personal benefit payments and the tax free threshold to overcome the regressive elements of raising the GST.”

Our GST bar is low

Similar taxes to the GST in New Zealand are 18 per cent, 20 per cent in the UK and at least 20 per cent in most of the European Union. In the US a range of state and Federal sales taxes apply across the country.

Stephen Anthony, chief economist with Industry Super Australia, said tax reform should include replacing company tax with a cashflow tax. “At the state level we should replace stamp duty with a land tax and unify payroll taxes across the country.”

A cashflow tax would tax revenues coming into companies rather than profits but would allow them to claim capital spending as an immediate tax deduction, Dr Anthony said. “It would result in higher tax revenues at lower tax rates and the result would be that a lot of Australian companies would not pay tax on a cyclical basis.”

Counting taxes not so simple

John Quiggin, an economist at the University of Queensland, warned that the OECD figures should not necessarily be taken at face value. ” A lot of OECD countries have social security taxes which are effectively income taxes.”

Such taxes account for on average 9.1 per cent of GDP across the OECD. “Australia has compulsory superannuation which is also effectively a tax, so if you include that the overall tax take would be higher,” Dr Quiggin said.

Working out the tax take is not so easy. Photo: Getty

While increasing indirect taxes was generally thought to be a good thing because it increased tax collections and allowed lower income taxes and extra work incentives, Dr Quiggin said evidence for that proposition was not proven.

“It’s an abstract claim with not much proof put forward. Australia’s relatively high reliance on income taxes doesn’t seem to reduce incentive as we have among the longest working hours in the OECD,” he said.

The New Daily is owned by Industry Super Holdings