Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 121

FactCheck: Is 50% of all income tax paid by 10% of the working population?

"50% of all income tax in Australia is paid by 10% of the working population." – Federal Treasurer Joe Hockey, interview with Fran Kelly on ABC RN Breakfast, July 27, 2015.

According to the 2015-16 Federal Budget, Australians paid around A$176 billion in personal income taxation in the 2014-15 financial year (Table 5 of Budget Paper 1). The Treasurer, Joe Hockey, claims that around 50% of this taxation is paid by the top 10% of the working age population as ranked by their income.

NATSEM’s STINMOD model of the Australian tax and transfer system can be used to evaluate the accuracy of such a claim.

STINMOD, which stands for Static Incomes Model, is NATSEM’s model of taxation and government benefits. It simulates the taxation and government benefits system and allows us to evaluate current and alternative policies and how they would affect different family types on various income levels.

STINMOD is based on ABS survey data (Survey of Income and Housing) which provides a statistically reliable and representative snapshot of household and personal incomes and demographics.

Since the survey is a few years old, NATSEM adjusts the population in accordance with population and economic changes since the survey.

STINMOD is not publicly available, but as a NATSEM researcher, I was able to use the model to check Hockey’s claim against the evidence. STINMOD is benchmarked to taxable incomes data from the latest Australian Tax Office taxation statistics on the distribution of tax payments by income.

When I restricted the STINMOD base population to the working age population only (aged 18 to 65) and rank these people by their taxable income, I found that the top 10% (those with taxable incomes beyond $102,000 per annum) do pay around 52% of all personal income taxation.

Different measures, similar result

Since high income earners usually have greater scope for minimising tax through deductions, such as negative gearing, we can use an alternative income measure called “total income from all sources” to rank personal incomes. On this ranking, the share of personal income taxation paid by the top 10% drops to 50.5%.

Australia’s personal income taxation system is strongly progressive, with higher income earners paying both a higher marginal tax rate and average tax rate compared to lower income earners. According to STINMOD, the 90th percentile of working age taxable income is $102,000 per year, while the median taxable income is $39,000 per year. The average tax rate of the 90th percentile is 26.7% while that of the median tax payer is less than half that at 12.3%.

This analysis does include a large number of people who are of a working age but not in the labour force - around 21% of this population (2.9 million persons). These people are not in the labour market for a range of reasons such as disabilities, students, young parents or through personal choice or a range of other reasons. Removing these people from the analysis reduces the tax share to 46% paid by the top 10%.

In 2014-15, personal income taxation made up around 47% of all tax received by the federal government. Other taxes are paid to state and local government. While personal income taxation is highly progressive, the incidence of these other taxes tend to be less progressive, or indeed mildly regressive. One example is the GST, which makes up around 14.4% of federal taxation receipts.

Verdict

The Treasurer’s statement that the top 10% of incomes from working age persons pay 50% of personal income tax is correct. This reflects the progressive nature of Australia’s personal income tax system, which is applied to a society that features significant income inequality.

The progressive nature of income taxation in Australia plays a very significant role in altering the distribution of disposable income (after-tax) and provides Australia with a more equal distribution of disposable income.

Review

The FactCheck seems reasonable and correct. It benchmarks the ABS household income and expenditure survey against the official ATO Taxation Statistics, and then confines to working age (18 to 65), to test the Treasurer’s claim.

There were about 12.8 million individuals filing tax returns in 2012-13. The ATO Statistics in its “100 persons” picture of Australian taxpayers, explains that the top three taxable incomes paid 27% of all net tax and the top nine taxable incomes paid 47% in total - pretty close to the working age estimate.

I agree with the author that the FactCheck demonstrates Australia’s progressive income tax system, which has long been considered fair.

Australia has a high tax-free threshold of $18,200 so many working age low earners pay very little income tax. In contrast, New Zealand taxes from the first dollar of income.

And many working age people pay no income tax simply because they are unable to find a job - as Australia has an adjusted 6% unemployment rate.

Have you ever seen a “fact” that doesn’t look quite right? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

 

Ben Phillips is Principal Research Fellow, National Centre for Social and Economic Modelling (NATSEM) at University of Canberra.

This article was first published in The Conversation and the original is here.

 

6 Comments
john
August 10, 2015

Re where Chris said
"as an individual, the harder you work and the more successful you are, the more tax you pay"

Actually what this says is not correct and it does not automatically follow this occurs. For numerous reasons which I wont go into now because they are self evident and because of time restraints. Who measures the aspect of "the harder you work" etc. Who accepts that one individual works harder than another etc etc. A person can work extremely hard and not receive justice in the sense of remuneration !

Nick
August 10, 2015

Below Ben's article, there is a response comment by Terry Reynolds in which he makes the claim (often made by Labor and others) that the Abbott government has made 80 billion dollar cuts to health and education. If ever there was a claim that requires fact checking, or at least clarification, it is this one.

Chris
August 07, 2015

I pay my fair share of tax, but what I do not understand is that as an individual, the harder you work and the more successful you are, the more tax you pay.

It should be the other way around, because if you are working hard, you are adding to the GDP of this nation. Why should an employee be penalized for being good at their job and earning lots of money ?! Tax pays for schools, hospitals, roads etc., but it is not like a successful person uses "more road" than a blue collar worker.

Graham Hand
August 07, 2015

Hi Mark, 1.5% of adults pay 26% of personal income tax, according to this article:
http://cuffelinks.com.au/how-much-income-tax-do-you-pay/. Numbers are somewhat dated but would not be materially different.

Mark
August 07, 2015

Interesting information.

Given the focus on the "1%" these past few years, I would have been curious as to how much tax is paid by the top 1% of the population. Do they pay 10% of all taxes? 20%? I'm guessing they pay their "fair share", despite all the criticism.

Terry Reynolds
August 07, 2015

Yes, and if the high income earners were paying tax at the 2004 rates, we would have had no public debt, balanced budgets, no $80B cut to educations and health over then years by the Abbott Government and no need to sneer at Speaker Bronwyn Bishop for allegedly taking five Liberal party guests in her now infamous helicopter ride to Geelong and promptly covering it herself when exposed. We would not have had to suffer the treasurer speaking to the world saying the days of entitlement are over as they look at him speaking as someone who has just been given the Treasurer's role in en economy he had no role in managing through the GFC. A man who called that Government the w worst ever!

After watching the abysmal performance of former Senator Boswell on the ABC's "Q and A "last night, a National Party relic who retired eight years ago, but is still mouthing the Abbott line, means we are getting no where on the tax debate. Raising the GST rate is a furphy to get people minds off the fact that the rich are underperforming in the fair tax contribution game.

Aggregates show a statistic and a percentage but don't tell the full story.

 

Leave a Comment:

     

RELATED ARTICLES

Taxation reform: is Canberra serious?

Labor is proposing a complex ‘new tax’

How much income tax do you pay?

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Latest Updates

Superannuation

'It’s your money' schemes transfer super from young to old

With the Coalition losing the 2022 election, its policy to allow young people to access super goes back on the shelf. But lowering the downsizer age to 55 was supported by Labor. Check the merits of both policies.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.

Superannuation

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Shares

Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.

Economy

Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.