Australian Government, 2006–07 Budget

Appendix A: Australia's tax system

Australia's tax system compared with the OECD

The analysis in this section includes the tax systems of all levels of government combined — national, state and local. Comparisons are provided with the tax systems of other OECD economies.

Tax burden

Australia has a low tax burden, both currently and historically. In 2003, Australia had the eighth lowest tax burden of the OECD countries (Chart A1) and has typically ranked in the bottom third of countries for the period since 1965.

  • Australia's tax burden as a proportion of GDP is 31.6 per cent, which is below the OECD average of 36.3 per cent.

Chart A1: Total tax burden for OECD countries, 2003(a)

Chart A1: Total tax burden for OECD countries, 2003(a)

  1. The OECD's measure of the tax burden is the total taxation revenue of national, state and local governments expressed as a percentage of gross domestic product. For Australia, the data are for the 2003-04 financial year, the latest year where comparable international data are available.

Source: OECD Revenue Statistics, 2005.

While the total tax burden for Australia has been relatively steady over recent years, the tax burden of the Australian Government has fallen while the tax burden of the states has increased (Chart A2).

Chart A2: The Australian tax burden by government sector

Total taxation revenue as a proportion of GDP, 1980-2003

Chart A2: The Australian tax burden by government sector - Total taxation revenue as a proportion of GDP, 1980-2003

OECD Revenue Statistics, 2005.

The tax burden of Australia's state governments increased from 6.1 per cent of GDP in 1999 to 8.5 per cent of GDP with the introduction of the goods and services tax in July 2000. The goods and services tax replaced a range of state government taxes and grants from the Australian Government. Since 2000, the tax burden of the state governments has increased by a further 8 per cent (or 0.7 percentage points), taking the state government tax burden to 9.2 per cent of GDP in 2003.

Tax mix

The Australian tax mix is broadly similar to most OECD countries (Chart A3), although there are a few distinguishing features.

  • Like most other advanced countries, Australia raises the majority of its taxation revenue (60.9 per cent in 2003) from direct taxation levied on incomes — wages, salaries, payrolls and profits. This is below the OECD average of 62.2 per cent. Japan (69.0 per cent) and the United States (69.8 per cent) have a higher reliance on direct taxation than Australia.
  • The remaining 39.1 per cent of Australia's taxation revenue is derived from indirect taxation — including the goods and services tax (value added tax), excise and customs duty, and property taxes. The OECD average is 37.8 per cent.

Chart A3: Direct and indirect taxation revenue as a proportion of
total taxation revenue for OECD countries, 2003

Chart A3: Direct and indirect taxation revenue as a proportion oftotal taxation revenue for OECD countries, 2003

Source: OECD Revenue Statistics, 2005.

When income taxes, payroll taxes and social security taxes are taken together, the share of Australia's direct taxes in total taxation is broadly comparable with the OECD average (Chart A4). However, for a significant number of countries, social security taxes are now the largest source of direct taxation revenue.

Chart A4: Australia's tax mix compared with the OECD average

Direct and indirect taxation revenue as a proportion of total taxation revenue, 2003

Australia

OECD

Chart A4: Australia's tax mix compared with the OECD average - Direct and indirect taxation revenue as a proportion of total taxation revenue, 2003: Australia

Chart A4: Australia's tax mix compared with the OECD average - Direct and indirect taxation revenue as a proportion of total taxation revenue, 2003: OECD

Source: OECD Revenue Statistics, 2005.

  • Social security taxes are payments to institutions of general government that are earmarked to provide social security benefits. They usually consist of two components — one withheld from employees' wages and the other paid by employers. Both components are treated by the OECD as a tax on the income of individuals because they form part of an employee's remuneration.
  • Examples of social security benefits funded through social security taxes include: unemployment insurance benefits and supplements; accident, injury and sickness benefits; old age, disability and survivors' pensions; family allowances; reimbursements for medical and hospital expenses; and provision of hospital or medical services. Australia funds these types of government programmes through general taxation revenue rather than a specific social security tax.

Australia has the fourth lowest level of direct taxation on individuals and payrolls in the OECD (Chart A5). Australia's tax burden (14.0 per cent of GDP) is significantly lower than the OECD average (19.5 per cent).

Chart A5: Components of direct taxation in respect of
individuals and payrolls, 2003

Chart A5: Components of direct taxation in respect ofindividuals and payrolls, 2003

Source: OECD Revenue Statistics, 2005.

Appendix A continued next page...

 

Miscellaneous