05/05/2015 - 04:54

Income envy misses the taxing question

05/05/2015 - 04:54

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Those who earn more also pay proportionally more tax.

Income envy misses the taxing question

Those who earn more also pay proportionally more tax.

I always look forward to the release of Australian Taxation Office statistics that identify the top income-earning suburbs and occupations.

There’s nothing like it to boost the envy rating. Coming out just before the budget, it highlights who the real earners are and, maybe, who we shouldn’t feel too sorry for if tax rates go up or any of the myriad subsidies are withdrawn in some way from those better off than we are.

Oddly enough, given it’s the tax office, the statistics always focus on the income extremes geographically and by occupation and gifts people give, but much less so on where the main tax payers are or which occupations pay the most tax.

It seems we want to know who the richest are and where they live, not who pays the most to keep the government running (and spending), which is the ATO’s key role, after all.

So I thought I’d do it myself, by looking at mean net tax compared with mean taxable income.

Firstly, it would probably be no surprise to see that the top five postcodes in Western Australia ranked by mean taxable income are also the top five that pay the most tax per person. For instance, the mean taxable income in Cottesloe and Peppermint Grove is $142,461 and the average net tax is $49,952. Nearly $50,000 paid in tax per taxpayer is a significant sum, right across those suburbs.

What I found fascinating was the ratio between tax paid and what the highest earners receive after tax. For instance, after-tax income for those at the top of the earning ladder is less than twice what they pay in tax.

For every dollar they pay in tax, they are allowed to keep $1.90 for themselves – a tax rate of more than 34 per cent. Naturally, as our progressive tax rate works, this ratio rises as taxable incomes fall.

By comparison, the biggest gap appears to be in the state’s rural heartland in areas such as Kojonup and surrounds, where the average taxable income is $40,876 and the average net tax is $7,214, which means $4.70 is kept for every dollar of tax paid.

For what its worth, the average taxable income in WA appears to be around $65,000 and the average net tax is $15,700, which means most people get to keep just over $3.10 for $1 of tax they pay.

Health professionals

FOR those who watch with alarm the rising costs of health, there’s a very big clue in the ATO statistics.

In WA, the top three occupations for earnings power are medical professionals being, in order, surgeons, anaesthetists and specialist physicians.

This is pretty much in line with the rest of nation, although the WA averages are significantly higher than the nation’s at this top end. A surgeon in WA, on average, has a mean taxable income of almost $437,000, whereas the Australian average is just over $361,000.

Unfortunately, the WA statistics are limited to just the top three occupations, whereas national figures show a top 10.

I can only presume the occupations are similar. Medical professionals, including psychiatrists, make up six of the top 10 occupations by mean taxable income, with GPs at the bottom of that elite group. Other occupations are financial dealers, legal professionals, mining engineers and CEOs.

The tricky thing with the data is that individual mean taxable incomes may not be the full picture. Many high-income earners operate businesses through partnerships and trusts where income may be treated differently than the pure pay-as-you-go employee.

From what I hear, surgeons earn well above this average figure but the ATO statistics don’t go into such detail. As a hint, just over 60 per cent of Australia’s 3,575 surgeons earn over $180,000 and the average taxable income among that elite within the elite is almost $525,000.

Anyway, let’s be fair. Firstly, no-one begrudges what a surgeon is getting paid when their life is in danger. For surgery that is less important, and price is an issue, people travel overseas.

And, on the same basis as other wealthy people, surgeons, according to ATO data, also pay a lot of tax on their taxable income – keeping $1.50 for $1 of tax.

 


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