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3 April 2025

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How much income tax do you pay?

There’s a never-ending debate about income inequality and how much taxes people at varying income levels should pay. This was brought onto the front pages by the Occupy movement, which highlighted in the United States that the top 10% of households had an income 11 times larger than the bottom 10% (sometimes called the 90/10 ratio). In Australia, income inequality is not this extreme, with the top 10% about 4 times larger than the bottom 10%.

This article does not buy into the social or equity arguments about income and tax distribution, but as we approach the end of another financial year where tax has again been high on the agenda, it’s interesting to see where personal income tax receipts come from.

A reminder of the current tax scales (check ATO website for updates):

The latest available statistics on numbers and amount in each tax bracket are from 2010/2011, when the bottom tax scale cut out at $6,000. In coming years, there will be far more people paying no tax than indicated in the diagram below. The top marginal tax rate for taxable income over $180,000 is 46.5%, the same in both reporting periods.

The following graph illustrates the amount of tax paid by tax bracket as at 2010/2011, and perhaps the most surprising statistic is the number of people in the bottom category who pay no personal income tax, even when the cut off was $6,000:

  • 45% of all adults, almost 8 million, pay no personal income tax. Another 17% or 3 million pay an average of $1,800. Therefore, 62% of Australians pay 4% of total personal income tax revenue
  • 26% of personal income tax, worth $35 billion or an average of $139,000 each, is paid by the 1.5% of adults or 260,000 people who earn more than $180,000
  • in the middle, 44% of adults or 7.5 million, pay the balance, 69% of income tax.

 

Ashley Owen is Joint Chief Executive Officer of Philo Capital Advisers and a director of Third Link Investment Managers.

 

2 Comments
Kevin Chuah
June 09, 2013

Hi Ashley,

As a statistician, I was also surprised by your findings presented here. In order to better understand your findings, I attempted to reconcile the data that you have presented. However, after looking at the source you quote from, I now realise that the data you have presented is not the data actually published by the ATO. Rather you seem to have re-interpreted what the ATO has published in Table 2.13 in the source you quote in the diagram. (Please correct me if I am wrong.)

This table shows that there were a total of around 9.3mn income tax payers in Australia in the 2010-11 income year. Of that 9.3mn, 2.7% have a taxable income of $180,000 or more, accounting for 26.2% of the income tax raised. You have then assumed that there is around 17mn “adults” in Australia, hence your 1.5% figure above.

In a similar way, you have assumed that any of the 17mn “adults” that do appear in this table pay no income tax and as a result, almost 8mn or 45% of “adults” pay no income tax. Importantly, what you have assumed to be “adults” seems to include anyone of “working age” or above.

Taking the latest data from the ABS, we can see that 66% of the Australian population was of "working age" (ie between 15-64). Further, 16.4% of the population where aged 65 or over. This means that roughly 20% of "adults" were eligible for retirement and far less likely to pay income tax. Additionally, a meaningful proportion of those in the bottom-end of the working age population could be expected to be in full-time education, so would also be unlikely to earn enough to pay income tax.

If you adjust your data for the working age population, the statistics look far less alarming. In fact, your 45% figure above would become 31%. One then needs to consider how many young people are in full-time education and how many households have one adult member staying at home. Once you consider that, I'm sure your figures look far less extreme and much less surprising.

ashley owen
June 10, 2013

Kevin, thanks for the feedback. It's all a question of definition. I start with a simple, everyday definition of adults - people over 18 years of age - ie all those entitled (forced actually) to vote - all those who enjoy the privileges of living in this great country - with clean air, safe water, safe food, safe streets, rule of law, protection of property rights, public institutions, national security, etc, etc. It is not an issue of equity, morality, inaliable human rights to welfare, etc - it is a simple fact that all of this must be paid for. One could argue that all people receiving income - of whatever type, whether of "working age" (whatever that is) or not - enjoy the benefits of this great country and ought to contribute financially in some small token way as a proportion of that income, however small that is. On the other hand if you narrow the definition down to those adults who are liable to pay tax after all of the tax breaks, rebates, subsidies, supplements, tax-free pensions, negative income tax transfers, income-splitting and other paper shuffling tricks - then of course close to 100% of people required to pay tax actually pay tax.
cheers.

 

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