Costello Claims Australia's Tax Burden Is One Of OECD's Lowest

by Mary Swire, Tax-News.com, Hong Kong

13 April 2006

Australian Federal Treasurer Peter Costello has claimed that a recently commissioned study into Australia's relative tax competetiveness shows that the country is on of the most lightly taxed members of the Organisation of Economic Cooperation and Development (OECD).

Releasing the Warburton-Hendy International Benchmarking Study on Wednesday, Costello announced the report conlcudes that, with an overall tax to GDP ratio of 31.6 per cent, Australia is "a low tax country by comparison with other developed economies." Australia has the eighth lowest tax burden of the 30 OECD countries, the report stated.

The study, launched in February, was led by Richard Warburton, who since September 2000 has been Chairman of the Board of Taxation, a non-statutory advisory body charged with contributing a business and broader community perspective to improving the design of taxation laws, and Peter Hendy, Chief Executive of the Australian Chamber of Commerce and Industry.

Its aim was to identify areas where Australia both leads and lags its international trading competitors.

"Australia’s mix between direct and indirect taxation is in line with other OECD countries, although the composition differs," observed Costello.

"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 largely imposed by the States," he added.

Australia is one of only eight OECD countries that does not levy any wealth, estate, inheritance or gift taxes.

Costello also noted that some of the countries that have a lower tax burden than Australia, notably Japan and the US, run very large fiscal deficits.

"The biggest structural difference between Australia’s tax system and those in other countries is our absence of social security contributions," Costello continued.

"Australia’s total wage and salary tax take as a proportion of GDP is low compared with the OECD-30 and the OECD-10. Once social security taxes and payroll taxes are accounted for, Australia has the second lowest level of direct taxation on individuals and payroll in the OECD-10," he added.

Costello said that Australia’s direct taxation of individuals and payroll is 14% of GDP, which is the fourth lowest in the OECD. For the eight family types examined by the report, the tax burden of each type is amongst the lowest eight of the 30 OECD countries.

Australia’s top marginal personal tax rate of 48.5% is slightly higher than the OECD average of 46.7%, while the threshold for the top marginal rate is slightly lower than the average for the OECD, according to the report.

The difference between Australia’s top marginal tax rate and company rate is broadly in line with the average difference for the OECD-30. Of the OECD-30, only the Slovak Republic has aligned its top marginal tax rate with the full statutory corporate tax rate, the report stated.

Australia has the eighth highest reliance on property and transaction taxation in the OECD (mainly capital transaction taxes such as stamp duties on mortgages). These taxes are mainly imposed by State and Territory governments in Australia.

"The Report will stand as a significant reference point to assist in framing policy to improve taxation policy and heighten the competitiveness of the Australian economy," Costello concluded.

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