Income tax in Australia’s tax system

Busting the myth that Australia collects too much income tax
by Matt Grudnoff

One of the most common misconceptions about Australia’s tax system is that it is over-reliant on income tax.

Despite repeated claims by business groups that Australia needs to reduce its reliance on income tax, the reality is that Australia is not only a low tax country when compared with other developed (OECD) countries but is also one of the least reliant on income taxes. Of the 38 developed nations Australia is the 9th lowest for all taxes and 7th lowest for income taxes including Social Security Contributions (SSCs).

The argument that Australia is over-reliant on income tax relies on narrowly defining income tax that mistakenly excludes SSCs. These social security contributions are levied by almost all developed countries to assist in the funding of a wide range of social benefits which can include unemployment benefits, accident, injury and sickness benefits, old age, and disability pensions, as well as the provision of various hospital and medical services. Importantly they act similar to income tax, in being levelled as a percentage of income earned (often just on employment earnings). SSCs are categorised as taxes on labour income by the OECD.

Claims that Australia is over-reliant on income tax do not stand up to scrutiny. Australia sits well below the OECD average when it comes to both income taxes and the amount of tax collected overall.

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