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Pocket Guide to the Australian Tax System

January 2013

Part 1: Australia’s tax system compared with the OECD

The analysis in this section combines the tax systems of all levels of government — national, state and local — and compares Australia with the tax systems of other OECD economies using the accrual accounting framework.

Tax burden

Australia’s tax-to-GDP ratio is low by international standards. In 2010 (Australia’s 2010-11 financial year), the latest year for which comparable international data is available, Australia had the fifth lowest tax burden of the OECD countries (Chart 1) and has typically ranked in the bottom third of countries since 1965 (when comparable data was first available). In 2010, Australia’s tax-to-GDP ratio was 25.6 per cent — below the OECD average of 33.8 per cent.

Chart 1: Tax-to-GDP ratio for OECD countries, 2010(a)

Chart 1: Tax-to-GDP ratio for OECD countries, 2010

(a) The OECD’s measure of the tax burden is the total taxation revenue of national, state and local governments expressed as a percentage of gross domestic product. For Australia, the data is for the 2010-11 financial year, the latest year where comparable numbers are available.

Source: OECD Revenue Statistics, 2012.

Chart 2 shows Australia’s taxes by level of government over time. The Australian Government’s total taxation revenue as a percentage of GDP averaged 22.5 per cent over the period from 1980-81 to 2010-11.

Chart 2: Australia’s tax-to-GDP ratio by level of government

Source: ABS Catalogue 5506.0, Taxation Revenue, Australia; and OECD Revenue Statistics, 2012.

The Australian Government raised 80.3 per cent of Australia’s total tax revenue in 2010 (Chart 3). The proportion of total taxation revenue attributed to the central government in Australia is the sixth highest amongst the OECD countries.

Chart 3: Australian Government taxation revenue as a proportion of total taxation revenue for OECD countries, 2010

Source: OECD Revenue Statistics, 2012.

Tax mix

The Australian tax mix is broadly similar to most OECD countries (Chart 4), although there are a few distinguishing features.

Like most countries, Australia raises the majority of its taxation revenue (62.3 per cent in 2010) from direct taxation, which is levied on incomes — wages, salaries, payrolls and profits. This is close to the OECD average of 61.6 per cent. Countries with a higher reliance than Australia on direct taxation include Japan (71.3 per cent) and Switzerland (70.0 per cent).

The remaining 37.7 per cent of Australia’s taxation revenue is derived from indirect taxation, including the goods and services tax, excise and customs duties, and property taxes. The OECD average is 38.4 per cent.

Chart 4: Direct and indirect taxation revenue as a proportion of
total taxation revenue for OECD countries, 2010

Source: OECD Revenue Statistics, 2012.

Australia’s composition of direct taxes differs from most OECD countries. Australia is one of two OECD countries (the other being New Zealand) that do not levy social security taxes. In contrast, social security taxes are a large source of direct taxation revenue for a significant number of OECD countries (Chart 5).

Chart 5: Australia’s taxation composition compared with the OECD average, 2010

Australia

OECD

Source: OECD Revenue Statistics, 2012.

Relative to GDP, Australia has the third lowest level of total taxation on personal income, which includes taxes on personal income, social security taxes and taxes on payroll, in the OECD (Chart 6). Australia’s tax burden relating to these items (11.2 per cent of GDP) is lower than the OECD average (18.4 per cent).

Chart 6: Components of direct taxation in respect of individuals and payrolls, 2010(a)

(a) Chile and Mexico have not been included due to incomplete data. This affects the average OECD figure.

Source: OECD Revenue Statistics, 2012.

Most indirect taxation in OECD countries is generated through various taxes on goods and services. Australia has the fourth lowest level for goods and services taxes and total indirect taxation in the OECD (Chart 7). Australia’s indirect tax burden relating to these items is 9.7 per cent of GDP which is significantly lower than the OECD average of 12.9 per cent.

Chart 7: Components of indirect taxation, 2010

Source: OECD Revenue Statistics, 2012.

Note: The OECD Revenue Statistics publication bundles other indirect taxes such as excise, customs and sales taxes into their label for ‘goods and services taxes’ — this terminology should not be confused with the ‘goods and services tax’ as reported in the Australian Government budget papers, which does not incorporate any additional indirect taxes.

Petrol taxation

The rate of excise duty on unleaded petrol in Australia is 38.1 cents per litre. This rate has been maintained since the indexation of petrol excise rates to the consumer price index (CPI) ceased in March 2001. The impact of excise duty on unleaded petrol, combined with the impact of general consumption taxes (value added tax (VAT), GST and sales taxes), is shown in Chart 8 for most OECD countries. Under this combined measure, which illustrates the total tax imposed on consumers, the average level of tax included in petrol prices for the OECD countries was A$ 0.95 per litre in the second quarter of 2012. In comparison, the level of tax included in unleaded petrol prices in Australia for the second quarter of 2011 was about half this amount at A$ 0.54 per litre — the fourth lowest of the OECD countries for which comparable data are available.

Chart 8: Regular unleaded petrol prices(a)

OECD countries, second quarter 2012

(a) Iceland has not been included due to incomplete data.

Source: IEA Statistics, Energy Prices and Taxes, Third Quarter 2012.

Next: Part 2: Australian Government taxes
Previous: Pocket Guide to the Australian Tax System
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