Who really does the heavy lifting in Australia?

The often quoted myth that low and middle income earners are doing the heavy lifting to fix our budget has been in vogue during the past fortnight – and it could not be further from the truth.

We hear it often: the rich need to pay their fair share! Governments always hurt the little guy. The poor suffer while the rich get off scot-free. We like these lines because they strike a chord with our moral conscience and we see obvious reason why the well off should make sacrifices for those less fortunate – I mean we’re a caring society after all.

But what if I was to say that the rich don’t only pay their fair share of tax, they actually pay nearly all of it. I’ll write that again to save you the double-take – the rich don’t only pay their fair share of tax, they actually pay nearly all of it.

Okay, if you’re still reading and have not yet punched your computer screen or reported my blog, let me explain.

According to Australian Bureau of Statistics data, the average Australian household received $2.70 in cash and services for every $1 it paid in tax.

The same data reveals that taking into account social security payments, welfare, public education and public health, only 20 percent of households pay any net tax – the other 80 percent receive their tax back via a range of social programs mentioned (this is also taking into account GST payments).

The top 1 percent of Australian earners accounted for 17 percent of income tax revenue in 2011. The top 10 percent accounted for 46 percent of income tax revenue. A quick look at the table from the Australian Taxation Office illustrates the distribution of tax in this country:

tax table

Note: 61.6 percent of revenue is coming from individuals who earn over $80,000 a year. Yet this is only 19.9 percent of our tax paying population.

This means that the bulk of money funding our services is coming from those in the highest brackets, with people in the lower brackets being the beneficiary. Data from economist Adam Creighton concludes that households in the lowest bracket pay a net tax of -64 percent. This means that comparative to what they put in opposed to what they get back, they receive 64 percent more in return from taxpayer dollars than what they contribute. For the next bracket, households on median incomes, their net tax paid is -22 percent.

As I wrote a couple of weeks ago, a recent study by an independent think-tank found that 48 percent of Australian families pay no net tax once entitlements such as welfare, family tax benefits and childcare rebates are taken into account.

Now sure, there are those wealthy Australians who will dodge tax through a neat network of deductions and clever accountants, but this lot only accounts for a miniscule percentage (less than 0.5 percent) of Australian taxpayers.

There is also the other argument that taxpayers are right to expect that their money be returned to them in the form of services and welfare. A fair point, and that is the essence of taxation anyway. Yet with this is mind, it means that the only people who are paying tax without breaking even are those in the top brackets – the rich who apparently ‘don’t pay their fair share.’ But don’t expect a thank you any time soon.

The fact is that the wealthy pay the majority of tax in Australia, and they fund the entitlements that median to lower income households have grown used to. It’s all very easy and simplistic to say that the rich should pay their fair share, but fact of the matter is, they already do.

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19 Comments on Who really does the heavy lifting in Australia?

  1. Anonymous // May 21, 2014 at 6:49 pm // Reply

    Am I the only one that thinks, in a first world country, we shouldn’t be counting education expenses as welfare?

    Besides, these numbers are more an indication of government service inefficiencies than anything else.

  2. The rich do the heavy lifting in terms of contributions to government revenue, but the poor do the heavy lifting in providing income and wealth to the rich. So the poor indirectly do do the heavy lifting in terms of contributions to government revenue.

  3. **who really really do the heavy lifting in Australia

  4. Struggling Student // May 24, 2014 at 12:54 pm // Reply

    I’m not sure what to think of this… Obviously satire. You wouldn’t be as ignorant as that surely!

    • Dale Hughes // May 24, 2014 at 3:06 pm // Reply

      I am happy for you to point out the errors in the above piece.
      I did forget to mention other taxes most often paid by the wealthy: capital gains tax, fringe benefits tax, company tax, payroll tax.
      Note also that I was not saying that there was anything wrong with the current system, because we should look after those in the lower income brackets. I was simply pointing out the misplaced idea that the rich are not contributing.

      • Anonymous // May 24, 2014 at 7:24 pm //

        Wealthy people do not pay payroll tax, companies do.

        Companies’ fiscal responsibilities are another issue altogether…

      • Leviathan // May 27, 2014 at 8:06 pm //

        Sooo – you’re saying, according to your figures, that they earn twice as much, and pay twice as much tax – so, they are paying exactly the same rate of tax ?

        However we also have a GST – yup – a GST which is around 15% of national income.

        Which is overwhelmingly paid for by middle and lower income earners – sheer volume.

        Also you appear to have simply forgotten several of the biggest welfare handouts the middle to upper earners receive – super free thresholds ohhhh and you guessed it Negative Gearing.

        Australia is one of the worst performing countries on earth for our balance between taxation and loop hole returns. So the taxation generated, government receipts which is returned via tax returns due to these types of arrangements is the highest in OECD countries – for the rich.

        The IMF did a study into which country was the worst for rent seekers living large off the fat of the government – as mentioned – Australia was the worst – here is a link for your further reading

        http://www.macrobusiness.com.au/2014/05/rort-nation/

        Hope you look into it and follow up.

        Will post this on other websites to ensure you follow up and don’t simply edit out unfavourable responses which destroy your poorly thought out argument.

      • @Leviathan, actually it shows they pay 2 to 10 times as much as the average taxpayer, with taxpayers in the 37k – 80k bracket paying about 1/3rd *less tax* than the average.

        Bracket……………….Taxpayers……………..$m………….Average Tax Paid…….% of avg
        $6k or less……………………..2,227……………….$-……………………..$-……………………-
        $6,001 – $37,000………2,908,555………..$5,363…………..$1,843.87……………….13%
        $37,001 – $80,000…….4,598,771…….. $45,637…………..$9,923.74……………….70%
        $80,001 – $180,000…..1,613,234………$46,940…………$29,096.83……………..206%
        $180,001 or more………..251,397………$34,773……….$138,319.07……………..977%
        TOTAL…………………….9,374,184…….$132,713…………$14,157.29……………..100%

        In short, total tax paid was $132,713M and this was paid by about 9M taxpayers. The average tax paid by a taxpayer is therefore around $14k. If you calculate the average for each bracket, you find that anyone earning under $80k pays /less tax/ than “the average taxpayer”. Where-as everyone earning more than $80k pays substantially more. Those in the 80k – 180k bracket pay twice as much tax, while those earning above $180k pay almost 10 times as much tax as the average.

        If you use the 37k – 80k bracket as the base, then those earning over $80k are paying 3 times as much tax, while those earning $180k or more are paying almost 14 times as much.

        You also mention the GST. Let’s assume anyone earning under $80,000 a year spends their entire income on goods that have a GST.

        Now, using the 11/12 tax tables (given I assume that’s where the data above came from as the tax free threshold is now $18k), we should be able to work-out how much the “average taxpayer within each bracket” is earning given their average tax paid.

        Income………………..Marginal tax rate…….Tax payable
        $0-$6,000………………………………0%……..Nil
        $6,001- $37,000……………………15%…….15 cents for each $1 over $6,000
        $37,001-$80,000…………………..30%…….$4,650 plus 30 cents for each dollar over $37,000
        $80,001-$180,000…………………37%…….$17,550 plus 37 cents for each dollar over $80,000
        $180,001 and above……………..45%…….$54,550 plus 45 cents for each dollar over $180,000

        If I’ve got this right, if someone in 80-180k bracket paid $29,096.83 tax, then we know they earned at least $80k, and paid at least $17,550 tax on that $80k. So if we subtract $17,550 from their Average Tax Paid, what’s left will be what they paid $0.37 on the dollar on, if we then add the $80k we know they earned back on (and run similar calculations for the other fields we get… we end up with a formula like ((AverageTaxPaid-TaxFromPreviousBracket)/TaxRate)+MinIncomeForThisBracket.

        These figures (see table below) seem to be about right,as the average Australian earns around $50k per annum. Given we’ve got 9M Taxpayers here and a population of 22M, that works out about right (9M Taxpayers is roughly 42% of the Australian population, $110k * 42% = $46k).

        Now, let’s assume that people within the first three tax brackets (earning < $80k) spend their entire income on goods and services that attract GST. This won't be true (given food, financial repayments on loans and other things) but we need to keep this simple because otherwise we're making too many assumptions.

        Working out GST is easy. If I paid $1.10 for an item and that price includes a 10% GST, we just need to divide by 11 to find out how much tax I paid. $1.10 / 11 = $0.10. So, if I spend my entire $6,000 income on items that have GST (I'm just assuming everyone in the lowest bracket earns the full $6k here as we have no data to calculate it), I would pay $6,000 / 11 = $545.45 in GST.

        For higher income earners it becomes harder. On the one hand, we can assume they spend their entire income on GST items as well (people who earn more also tend to spend more), on the other we know they buy shares and properties and other "GST free" things but which attract other taxes such as Capital Gains Tax and Stamp Duty…

        In short, there's no real way to work out short of going through individual financial receipts. But I think it's reasonable to assume that a higher income earner will spend more across the board. From food (putting on lavish parties and what-not, effectively meaning they take advantage of it being GST free), going out to dinner, and everyday items.

        So… Let's just keep it easy and say that everyone across all brackets spends 80% of their income on items that attract GST (ignoring that low income people spend a higher proportion of their income on GST free food, but then there's cigarettes and alcohol taxes so…).

        Bracket………….Avg. Tax…..Avg. Earn……GST (@80%)…..% of Avg……% of Total
        < $6k……………………….$-…….$6,000…………$436…………………5%………….1%
        $6k – $37k…………$1,844…..$18,292………$1,330………………..16%…………3%
        $37k – $80k……….$9,924…..$54,579………$3,969…………………49%……….10%
        $80k – $180k……$29,097…$111,207………$8,088……………….100%………..20%
        $180k +…………$138,319…$366,153…….$26,629……………….329%………..66%
        TOTAL……………$14,157…$111,246……….$8,091……………….100%

        In this scenario we find the average taxpayer pays $8,000 GST but again find that only the two wealthier brackets actually reach this level. Those earning less than $80k pay half that and those in the highest bracket pay 3 times as much.

        And in fact – under this scenario – of the 100% of GST earned, the two highest brackets paid 86% of it. You said GST accounts for 15% of the National Income? Well under this scenario, 86% of that comes from the top two brackets.

        Once again, those earning more are paying more tax. Sheer volume of population numbers can't make up for the sheer volume of actual money spent by higher income earners. IE: A household of 6 poor Uni students earning $6,000 each is out-done in GST revenue by a single individual earning the average wage. Poor people simply don't pay that much GST, despite the myth, because they just aren't /earning enough/ in the first place.

        Feel free to argue that a wealthy household won't be spending more on expensive electrical goods, furniture and other items all of which attract GST. In fact a wealthy individual is likely to spend more on GST with the purchase of a single luxury leather Sofa, than a Uni student will pay for the entire year.

        You have a point with Super Free thresholds and Negative Gearing but we're looking at /tax actually paid/. Tax benefits that are claimed come off of your tax return and aren't paid. Negative Gearing isn't $36B that's /handed back/. It's $36B that's /never collected/ in the first place.

        It's clear that of the tax that's actually being collected, a large portion of it comes from the top 20% of the population. Sure, they get a tax break on super and negative gearing (negative gearing which allows them to rent a home out to someone who otherwise couldn't afford one – at least in theory; and which is often balanced out by the capital gains earned from the eventual sale of the property) but of the tax that is actually collected, it's coming from that top 20%.

        Perfectly happy for anyone to correct me if they feel any of this is wrong.

  5. Michael Croft // May 24, 2014 at 3:01 pm // Reply

    Aaaah statistics, it isn’t about the amount but the proportion of income going in taxes that makes it heavy.

  6. As a minor point against your argument; the rich receive government support in the form of access to an educated workforce, and a strong legal and contracts system which protects them.

    It’s somewhat harder to measure the value of these things compared to just taking the first available number and running with it.

  7. Interesting article. [Found your website through your recent Drum article and thought I’d take a look]. I enjoyed your commentary on social issues (and will return to read more) but as an economics graduate I must ask that you avoid writing on economics in future.

    Demonstrating that the wealthy pay far more in tax in our progressive tax system is so unremarkable as to be pointless, unless your very point is to make the wealthy seem overtaxed through a selection of statistics so remarkable as to make me shudder.

    A simple rebuttal would be to ask you to consider the life-cycle of tax payments rather than a single point in time. For example, the average university student is a net tax recipient. Post-education and pre-children, said citizen would start to pay more in tax than they receive in welfare. The kids arrive and the tax/welfare pendulum swings wildly back in their favour. The children leave the nest, our citizen reaches peak lifetime earnings, and lo and behold they receive little in welfare and begin to complain bitterly about the tax they pay to support all the bludgers out there.

    Oh, there are exceptions of course, but this is the general rule. And of course, if you were right in the middle of the pack then over your lifetime you would expect to pay exactly as much tax as you receive in services – the Government is not in it for a profit, after all (federal debt excluded for simplicity, of course). I would expect that the Australian citizen who fell into this situation would spend equal proportions of their life 1) complaining about how much tax he/she pays out to welfare recipients, and 2) complaining about all the hours he/she must waste lining up at Centrelink! Such is human nature.

  8. I’m not sure what the purpose of the article is. As the major portion of our taxes go to welfare, public health etc. and distribution income is not linear (I.e. There are more poor people than rich people) then inevitably more people will be net receivers than net payers.
    For example imagine an extreme case where income distribution was flat (Same number of people in each income bracket), and we had a flat tax rate, and all tax revenue was paid out in welfare, health, etc., then there would have 50% net payers and 50% net receivers.
    The only way you can increase the net payers is:
    1) have a lot more wealthy people than poor people ( not going to happen)
    2) significantly reduce the percentage of our taxes that go to social benefits. If you reduce the percentage returned to the people in social payments, then by definition you reduced the net receivers.

    Spend significantly more on defence and infrastructure and you’ll fix the ‘problem’ – is what we want?

    In summary: So what? Isn’t it merely showing the system is working as intended?

  9. Great read…

  10. I find these figures disturbing.

    37-80k bracket pay almost half of their pay to tax and are not entitled to low income benefits like the health care card and free Medicare.
    Due to rising costs of utilities, home loans, GST and other living expenses, this tax bracket is painful. These people are generally the hardest working people, who ACTUALLY DO HEAVY LIFTING. And are lucky if they can make ends meet at the end of a pay cycle.

    The next income bracket is 80-180k, sure they pay 1% more in this bracket than the last, but there is more left over after all the bills and taxes are paid to really enjoy life. These people are usually the ones who go on regular holidays, and negative gear a beach shack or an apartment. Life is good if you live in this bracket as long as you know how to work it so others do the actuall lifting.

    But then there is the next bracket. 180k+. There are only 251,397 taxpayers in this elite bracket. They include all politicians and corporate CEOs. Gina Rineheart is also in this bracket, or she would be if all her profits didn’t go off shore to Singapore. Wait a second, all our millionaires and billionaires are in this bracket and yet it only brings in $34,773M?!
    How is this so? Sure it’s a rich man’s world, which is why these people as a general rule hire others to do the lifting, and enjoy a lower taxation of 26.2%. At this end of the pool, the money is so deep these people can’t touch the bottom. They have no way of ever spending it all and life becomes rather abstract as things like poverty and human rights start to lose all meaning.
    We have people (like the late Packer Snr) only paying $300 in annual tax. That’s three hundred x $1 coins.

    How does this happen?
    They are the owners. They can do what they like. And they want to blame the national debt on the poor and take it out of Medicare and other welfare programs to balance the checkbook.

    The rich do not feel the pinch. They still go on holidays, they still live in luxury and buy whatever they please. Yet their decisions impact on those in the low income brackets who cannot afford the increasing costs of living and live in a constant state of stress and full time work.

    Now, I believe we have a different perspective on what heavy lifting is, Dale. Money is an imbalanced measuring stick. Poor and low income people are blamed for not contributing enough cursed money. But show me the ledger that keeps a tally on how much pain and sweat is spent by each tax bracket. Show me the percentage of shits given for our fellow man and our environment by each income bracket. How many tears are shed. How many suicide. How many struggle. How many have health issues that are not addressed.

    As the other commentators have pointed out, looking at these tax figures alone is unremarkable, and out of context with the entirety of our society, how it is being run and how it could and most likely will be run in the future.

  11. If I may be so bold as to answer a few of the above questions;
    1) The point of the article is that a small proportion of the population actually pay net tax.
    2) The left demonise and label these people “Rich” so that any additional taxes placed upon them, no matter how unfair, can be justified.
    3) The current focus on “tax reform” can only end in one outcome given that all of the industry groups want their members to pay less tax and all of the Union / Social Services groups want their members to receive more money without paying any more tax…that the 20% that pay net tax will have to pay more even more tax…..”the rich should pay their fair share”. So, what is that fair share? It’s whatever those who don’t pay any net tax need it to be so that they can continue enjoy living off someone else’s earnings.

  12. Can’t this author read a simple graph? The most tax in dollar terms and percentage of the total tax take is paid by people in the $37,000 to $180,000 pa brackets, These people are not rich, unless they are only in that bracket because they are rich people who have successfully reduced their taxable incomes to those brackets (a common occurrence not available to the wage earners in those brackets).

    The rich pay little, and the poor cannot be expected to pay anything, except they do through the regressive GST.

    The rest of the article is not worth the paper it is printed out on, because the basic premise is fatally flawed.

3 Trackbacks / Pingbacks

  1. Where’s My Damn Invitation Malcolm? | Shiftboss
  2. The unpopular truth- the rich are funding your lifestyle – The Thought Hub
  3. Newsflash, Australia: the rich already pay their fair share – The Thought Hub

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