A new study shows Australia is a relatively low taxing country compared to other countries, but an expert says this highlights a “double-edged sword” in maximising the benefits of lower taxes.
According to a study by international accounting and consultancy network UHY Haines Norton, Australia collects just 23% of gross domestic product in tax.
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This is lower than all but one G8 nation (Russia), and sixth overall in a list of the 23 economies analysed.
Australia’s tax collected as a percentage of GDP was also 21%, lower than the combined average of the three major eurozone economies of Germany, France and Italy.
The research looked at tax and GDP data for 23 countries across UHY’s international network, including the G8, key emerging economies and BRIC nations (Brazil, Russia, India and China).
It did not include the compulsory 9% superannuation guarantee charge Australian businesses are subject to, which does not exist in Europe.
Australia collected US$354.1 billion of taxes from GDP of US$1,507.4 billon in the most recent tax year. Of that total, indirect taxes were US$118.4 billion and income taxes US$202.7 billion.
According to Michael Garrone, chairman of the UHY Haines Norton Australia tax group, the findings show Australia is a relatively low taxing country, which might surprise many people.
However, Garrone says it also highlights a “double-edged sword” in maximising the benefits of lower taxes.
“Our current tax competitiveness on a global scale has clear advantages for business and the economy,” Garrone says.
“[But] there’s a danger that it will be undermined by any policies or new taxes that increase labour costs and diminish productivity.”
“Coupled with a current skills shortage many industries are experiencing, we run the risk of throwing the baby out with the bathwater and limiting the relative advantage our economy has.”
“Globally, countries like Germany, Italy and France clearly face tougher times. However… their high tax burden is often identified as an important factor inhibiting economic growth.”
“Many G8 nations facing the eurozone crisis over the last few years have attempted to reduce their debt levels by raising taxes.”
From a tax perspective, Garrone says this poses a “catch-22 situation” because they’re “pricing themselves out of the market by raising taxes to pay down debts while at the same time eroding competitiveness even further”.