The objective of this report is to provide an authoritative statement on how Australia’s taxes compare with those in other countries, without making policy recommendations or judgments. Where possible, the report provides a full comparison of Australia’s tax system with those of other advanced economies, as represented by the membership of the OECD. In places, comparisons are also drawn with other developed and developing economies in our region. In other places, particularly in respect of the reporting of detailed tax design features, it was not possible for this study to cover all of these countries, so a subset of comparator countries (the OECD-10) was selected. The other nine members of the subset are: Canada, Ireland, Japan, the Netherlands, New Zealand, Spain, Switzerland, the United Kingdom and the United States.
These nine members of the OECD-10 were chosen because they are broadly similar to Australia in terms of their overall tax to GDP ratio and the role of the government sector in their economies (Chapter 1 provides further details). The size of the subset needed to achieve a balance between the degree of similarity between the comparator countries and a sufficiently large sample of countries to provide meaningful comparisons without imposing excessive information collection demands.
The comparison of countries’ tax regimes is a challenging task. Caution is paramount in drawing conclusions from such comparisons, because statistical tools, data sources, aggregation issues and assumptions can affect the reliability of the comparisons. Moreover, comprehensive tax comparisons could not be made in all areas due to a lack of data and to methodological issues with the studies that have been conducted. This limitation applies for retirement savings, tax administration and compliance costs and the use of tax expenditures.
The report shows that Australia is a low-tax country. Australia’s overall tax burden (31.6 per cent), measured as the tax to GDP ratio, is the eighth lowest of the 30-member OECD. Australia’s mix between direct and indirect taxation is in line with other OECD countries, although the composition differs. For example, Australia’s indirect tax mix differs through a lower reliance on value-added and sales taxes, and a relatively higher reliance on property and transaction taxes, further, Australia does not levy any wealth, estate, inheritance or gift taxes.
Australia’s total wage and salary tax take as a proportion of GDP is low compared with the OECD-30 and the OECD-10. While Australia’s individual income tax burden is relatively high compared to the OECD-30 and OECD-10, once social security contributions and payroll taxes are accounted for, Australia has the second lowest level of direct taxation on individuals and payroll in the OECD-10.
Australia’s company income tax as a proportion of GDP is above that of the other OECD-10 countries, but there are classification issues concerning this comparison. Australia’s statutory corporate tax rate is in line with OECD-30 and OECD-10 averages. Australia’s treatment of depreciation, losses and goodwill is generally less favourable. Australia’s reliance on property and transaction taxes, which are virtually all levied by State, Territory and local governments, is relatively high compared with the OECD-30.
Australia’s reliance on property and transaction taxes is more in line with the OECD-10, despite having the highest tax burden on financial and capital transactions.