Yesterday, Treasurer Joe Hockey told ABC RN’s Fran Kelly that 50 per cent of all income tax in Australia is paid by 10 per cent of the working population.
Principal Research Fellow at the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra set out to determine whether this was a truthful statement.
Mr Phillips used the Static Incomes Model, which simulates the taxation and government benefits system and allows us to evaluate current and alternative policies and how they would affect different family types on various income levels, plus Budget data.
“When I restricted the STINMOD base population to the working age population only (aged 18 to 65) and rank these people by their taxable income, I found that the top 10 per cent (those with taxable incomes beyond $102,000 per annum) do pay around 52 per cent of all personal income taxation,” Mr Phillips writes in The Conversation.
Since high income earners usually have greater scope for minimising tax through deductions, such as negative gearing, Mr Phillips double checked the statistics using a different income measure called “total income from all sources” to rank personal incomes. “On this ranking, the share of personal income taxation paid by the top 10 per cent drops to 50.5 per cent.”
This analysis does not include the 2.9 million people who are not in the workforce for whatever reason. Removing these people from the labour pool reduces the tax share to 46 per cent paid by the top 10 per cent of workers.
So it seems the Treasurer’s statement stacks up. Mr Phillips says this is a sign of a well developed income tax system.
“Australia’s personal income taxation system is strongly progressive, with higher income earners paying both a higher marginal tax rate and average tax rate compared to lower income earners.”
The researcher found the average tax rate of the top 10 per cent earners was 26.7 per cent, while average taxpayer was paying less than half that, at 12.3 per cent.
According to the 2015-16 Federal Budget, Australians paid around A$176 billion in personal income tax in the 2014-15 financial year. In 2014-15, personal income tax made up around 47 per cent of all tax received by the federal government
Do you think Australia’s income tax system is fair? What changes could be made to improve it?