Actually, “the rich” already pay most of the tax

I was recently told by someone that they thought Australia needed to tax the rich more.  I asked how much of the government’s tax take they felt should be paid by the top 10% of income earners.  They didn’t give a figure because they didn’t know what it was currently. Nor did I so I went and looked up the evidence.  It turns out that, in Australia:

1) The top 10% of income earners pay 50% of the income tax.
2) Average income tax rates (%) are 15 times higher for the top 20% of households than the bottom 20%.
3) Half of households make pay no net tax (ie tax minus welfare payments).
4) 80% of households receive more from the government than they pay.

Firstly, the top 10% of Australian workers pay about 50% of all income tax that the government receives. About half of this (27%) is paid by the top 3% of earners. So clearly, well paid Australian workers have an awful lot of tax taken out of their pay packet. The Tax Office reports that the highest paid (and taxed) are surgeons. Other professions in the top 10 include anaesthetists, GPs, psychiatrists, and mining engineers. CEOs came in at number 9.

But this is just income tax, people also pay other taxes (eg GST). And they receive money back from the government (eg pensions, welfare). When looking at this complete picture, it turns out that half of all households make no net contribution at all. While the other households provide all the funding of public schooling, hospitals, housing, ABC, SBS etc.

All of us benefit from this government spending on parks, schools, medicare. When this benefit is taken into account only 20% of households (in any year) pay any net tax.

Only the top fifth of households ranked by their income – those with incomes of more than $200,000 a year in the financial year ending June 2012 – pay anything into the system net of the value of social security in cash and kind received, according to data from the latest Australian Bureau of Statistics survey of household income.

One author writes: “the rich don’t pay a “fair share” of tax…. they pay all of it“, but this is a bit of a distortion, they don’t pay all of it, they are just the only ones who pay more than they receive, and they pay a very great amount.

Clearly we take a lot of tax from high earners, and give it to low earners. So any Australian politician who promises to give you more by taking more from the rich is being deceitful – they already pay so much. This is one of the reasons that Treasury analysis always shows that increased taxes on the wealthy will raise very little money.

PS This is an analysis of people who earn incomes. There are a few people who are rich but don’t earn incomes so don’t pay a lot of tax, e.g. a widow living in a mansion, a university student living off parents, a farmer whose farm lost money in this particular year.

According to Australian Bureau of Statistics, the middle quintile of Australian households receive $2.70 in cash and services for every $1 they paid in tax. How can this be? Because the top quintile (20%) pays a lot, also the govt receives corporate taxes.

The biggest corporate taxpayers are the mining/oil companies, banks, and Coles and Woolworths.

About ByronSharp

Byron Sharp is Professor of Marketing Science, and director of the Ehrenberg-Bass Institute, University of South Australia
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