09/05/2012 - 11:14

Digesting the national take on taxation

09/05/2012 - 11:14


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Getting the income tax ratio right is an ongoing challenge for government.

Getting the income tax ratio right is an ongoing challenge for government.

MOST of us know the tax analogy of the 10 men eating at a restaurant and how much they would shell out for their part of a $100 collective bill if each paid according to the current income tax system.

In effect, a few diners pay nothing while the rest pay an increasing amount, starting from $1 to the last – representing someone on the highest marginal tax rate – who actually pays the majority of the bill on his lonesome. Smart readers will realise the $100 bill represents a percentage.

The analogy goes further by suggesting that one day the restaurateur offers a discount to the diners because they are regular customers – by cutting each paying customer’s bill by a certain percentage. At that point, those who pay nothing or not much (and therefore receive little or no recompense), take exception to the size of the discount offered to the one guy who pays the majority of the bill.

As an aside, that argument over the discount is the same as the federal government’s language about superannuation and the suggestion that the rest of Australia subsidises high income earners when they pay 15 per cent tax on super contributions rather than 45 cent in the dollar. That is bulldust, of course; they get a bigger discount because they are paying more in the first place – but somehow that gets twisted into a subsidy.

Of course, in the analogy, the next time the group turned up for dinner, their major benefactor did not show and they discovered what it is like to have to pay for the full meal themselves.

You can go on the internet and find plenty of examples of this analogy but I have never seen a breakdown along the lines of Australian tax brackets, so I thought I’d have a go myself when I saw the tax office had released its 2009-10 statistics.

The result, pictured here, is primarily drawn from the (accompanying) data set – resident individuals’ net tax payable, by taxable income, 2009-10 income year. I did add non-resident net tax payable, which creates a marginal change and also means I had to merge the two lowest tax brackets.

At my table those brackets are the two people who pay $2 each. Their income is below $35,000. In reality, those below $6,000 are so few that they have negligible impact on the outcome.

At the top end, it is different. In order to make my table a dinner party rather than a banquet I had to merge the top two tax brackets – so that I had nearly 1.6 million taxpayers generating a collective $69.14 billion – or $43,841 each.

In my view that is pretty generous to someone earning $81,000, for instance, but I will expand on that later.

According to my calculations, if a table were created for each person in this top group (tax brackets $81,001-$180,000 and $180,001 or more) they would foot $57 of the total $100 bill on a proportionate basis.

Those paying less represent the proportionate number of people in the total taxpaying population at each other tax bracket (including the two bottom brackets merged) along with the remnant 5.9 million people of working age (15-64) who, according to my calculation, don’t pay any tax.

So for every one person in the top two tax brackets, there are four who don’t pay anything.

While the number of working age non-taxpayers is not perfect – some would be non-working spouses of taxpayers, which you would generally think of as being part of a taxpaying unit because they are not necessarily dependent on the state for their income – there would also be plenty of taxpayers who are older than 64, so hopefully that nets out a bit.

Nevertheless, I think it provides a reasonable snapshot of each person’s contribution. If you want to think about it in your own context, people earnings $35,000 or less pay, on average, $1,726 tax; those between $35,001 and $80,000 pay $9,810; those between $80,001 and $180,000 pay $29,416; and those above $180,001 pay a staggering $138,052. Those last two average out to the figure of $43,841 mentioned above.

From those numbers, you can probably tell where you really fit in the spectrum of direct monetary contribution to society.

I did try to leave those two top tax brackets separate but if you distil it back to one taxpayer from the top bracket, you end up with a banquet table of 72 people: with the top tax bracket paying $24 from a $100 bill; seven people paying $5 each; 23 people paying $1.60 each; 13 people paying 32 cents each; and 28 paying nothing towards the bill.

In effect, just 200,000 people pay one quarter of the income tax generated in a country of 22 million people; and just less than 1.6 million people pay nearly 60 per cent.

They are also likely to be the majority of people making investment decisions on behalf of major public and private businesses. 

Feel free to pull apart my numbers. It would not be the first time.Alien invasion

THE difference between offshore profit (or loss) centres for Australia’s banks was suitably exposed by results from National Australia Bank and ANZ.

NAB said it will spend £456 million ($A713 million) and cut 1,400 British jobs to prevent its UK business from causing more damage to its bottom line.

In contrast, ANZ said its offshore operations, including Europe and the US but more specifically Asia, were kicking goals while its domestic business was lacklustre.

Long ago I wrote about how corporates mimic the animal (and plant) kingdom. The bigger the continent from which an animal harks, the greater the likelihood of its success when, through various means, it invades another landmass. Australia is a small continent and has few export successes from the natural world. The raven, from recollection, is one rare example. As we know from the way our continent has been ravaged by introduced species, those that have developed robust survival mechanisms in the big world find Australia’s relatively protected species quite vulnerable when challenged.

So it is with the corporate world.

ANZ is a good example. Its success outside Australia was first in New Zealand. More recently it has spread its wings into Asia. Asia is not one big market; it is a bunch of smaller ones, and they were a lot smaller when ANZ first went there. It has successfully invaded a series of regional areas and successfully adapted to the local environment.

By comparison, NAB went into the big and well-developed UK banking market, which dwarfs its home sector. It has struggled, reflecting a similar issue it had in the US some years ago. All business can learn from this: perhaps a fauna-driven cliché fits this – don’t bite off more than you can chew.

• mark.pownall@wabn.com.au


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