Analyzing Australian Tax Rates: Problems and Potential Solutions

This essay delves into the complexities of Australia's high tax rates, highlighting the issues caused by the numerous taxes levied, including company taxes, Capital Gains Tax (CGT), Goods and Services Tax (GST), and personal income tax. The author notes that Australia's corporate tax rate is significantly higher than many of its competitors, leading to challenges for businesses and individuals. The essay explores the economic consequences of these high rates, such as businesses operating abroad and reduced productivity. The author then proposes various solutions, including the Enterprise Tax Plan, withdrawal of tax incentives, adoption of OECD rules to prevent profit shifting, and implementation of GST. The essay also suggests incorporating schemes like Singapore's Start-up Tax Exemption Scheme and Business and the Institutions of Public Character Partnership Schemes to help balance tax rates and boost the nation's productivity.

Running Head: THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX
Title: The Problem and Solution to the High Rate of Australian Tax
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1THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX
In comparison to other nations like Unites States or UK, Australia has one of the
highest tax rates in the world. The Australian taxes include mainly the major business taxes,
which are collected through the Australian Tax Office (ATO). These business taxes include
company taxes, Capital Gains Tax (CGT) as well as Goods and Services Tax (GST). The
Australians have personal income tax which is basically subtracted from the employee’s pay
itself. Australia also has different tax agreement with more than 40 countries, which actually
prevents double taxation and aims at the promotion of cooperation among the international
tax authorities (www.austrade.gov.au 2019). The taxation system of Australia actually
causes pretty problems for the employees of the nation.
There are almost 125 different taxes levied in Australia out of which 99 are charged
by the Government, 25 by the State and 1 by the local government
(www.taxreview.treasury.gov.au 2019). More than 70% of the revenue of Australia is
derived of its revenue, which comprises of the direct income as well as corporation tax. When
compared in global standards, Australian direct taxes are pretty high compared to other
countries. At present, according to a report of Organization for Economic Cooperation and
Development (OECD), Australia’s corporate tax rate is almost 30% higher than the other
competitors like South Korea, New Zealand, Norway, United States, Italy and Britain. Since
the year of 2000, the corporate tax rates of Australia has not been lowered (Fernyhough
2015). Sales Tax rate in Australia is almost 10% which is less than other countries like
Finland, India and Canada but is also higher than other countries. If any Australian resident
earns $18,201 he has to pay a high income tax rate of 19%. 13 % is for the people earning
$37,001 and it reaches up to 45% for $180,000+ income groups. On the other hand, USA has
lower income tax rates which makes it easy and a more attractive place to perform business
activities (Richardson, Taylor and Lanis 2015).

2THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX
The Australians face an unusual tax burden. The reason behind the high rates of
Australian varied taxes, are because of its abundance of wealth of coal and iron ore. Australia
thinks that it’s not necessary for her to compete against the other nations that stimulate
manufacturing industries, especially small industries like mining. It thinks that in order to
obtain a greater economic benefit, Australia needs to have a higher capital gain tax as well as
sales and Goods and Services tax. Although all the people of Australia do not reach the
highest income tax rate group, the economy of the nation still gets affected. Many businesses
in Australia choose to operate from abroad, and the individuals offer less productivity to the
firms, so that they can avoid the payment of high tax rates. The living standards that is the per
capita income of Australia are usually determined by the level of its terms of trades, the
nation’s labour productivity, population as a whole and its labour force participation. Future
of Australia’s trade level and population growth are foreseen to decline due to increase in the
rate of taxes which means a decrease in labour productivity level (Findlay and Garnaut 2017).
To reduce the high tax rates, the Australian government has passed the Enterprise Tax
Plan. This has aimed at reducing the different tax rates especially the corporate taxes for the
other corporate entities. Australia can withdraw its tax incentives and exemptions, which can
help to lower its tax rates. This might help the global investors to invest in the nation and also
make way for the national companies to expand their business overseas. Australia can adopt
the OECD’s rules so that the companies are prevented from shifting their profits to the
inactive companies that exempt taxes. The low rate of company income tax results in the
increase of the variable capital stock, which eventually raises the productivity of fixed factors
and invariably the demand for the same. (Kouparitsas, Prihardini, and Beames 2016).
Countries like US can cooperate with the nations like Australia, which would help to
implement sales and corporate tax planning strategies including profit shifting. Eventually
this will help to reduce the high tax rates of the nation. On the other hand, GST can be

3THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX
implemented in a good amount which would swell up the indirect taxes and reduce the direct
tax rates. Singapore has implemented the Start-up Tax Exemption Scheme (SUTE) and the
Partial Tax Exemption (PTE). According to SUTE, the Singapore government enables
encouragement for the growth of local start-ups and entrepreneurship. (KHOO and Guan
2013). This exempts them from the excess taxes they have to pay. Australia can incorporate
this scheme in its administration. Also Australia can incorporate the Business and the
Institutions of Public Character Partnership Schemes like Singapore has done, that grants
Singapore of a 250% corporate tax deduction, and also provides professional services.
Thus from the above discussion it can be concluded that the tax rates in Australia are
pretty high not because the high income groups are paying higher taxes but instead it is
because the lower income groups have lesser tax to pay. Australia should have a balance in
its tax rates, in order to increase the nation’s productivity.

4THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX
References
Fernyhough, J. (2015). Australia's income tax: is it really so high? | The New Daily. [online]
The New Daily. Available at:
https://thenewdaily.com.au/money/finance-news/2015/04/12/australias-income-tax-really-
high/ [Accessed 27 Jun. 2019]
Findlay, C. and Garnaut, R., 2017. The political economy of manufacturing protection:
Experiences of ASEAN and Australia. Routledge.
KHOO, T.A. and Tan Kai Guan, C., 2013. Work out optimum tax rates, benefits for a new
business.
Kouparitsas, M., Prihardini, D. and Beames, A. (2016). [ebook] Available at:
https://treasury.gov.au/sites/default/files/2019-03/Treasury-Working-Paper-2016-02.docx
[Accessed 28 Jun. 2019].
Richardson, G., Taylor, G. and Lanis, R., 2015. The impact of financial distress on corporate
tax avoidance spanning the global financial crisis: Evidence from Australia. Economic
Modelling, 44, pp.44-53.
www.austrade.gov.au (2019). Understanding Australian taxes - Austrade. [online]
Austrade.gov.au. Available at: https://www.austrade.gov.au/International/Invest/Guide-to-
investing/Running-a-business/Understanding-Australian-taxes [Accessed 27 Jun. 2019]
www.taxreview.treasury.gov.au (2019). Architecture of Australia's tax and transfer system.
[online] Taxreview.treasury.gov.au. Available at:
http://taxreview.treasury.gov.au/content/Paper.aspx?doc=html/publications/papers/report/
section_2-03.htm [Accessed 29 Jun. 2019].

5THE PROBLEM TO THE HIGH RATE OF AUSTRALIAN TAX