Wednesday, August 06, 2008

Architecture of Australia's Tax System

The first stage of the Commonwealth Government's tax review was released today. The 366 page document describes Australia's tax and transfer payment system and compares it to other countries. These comparisons make it a worthwhile read for non-Australians too. Hard to imagine the US Federal Government doing something as systematic as this. There's so much here that I really can't begin to summarize!

But here's an interesting chart that surprised me:

According to this, only about half a million employees or 5% of the workforce make pretax contributions to their retirement accounts ("salary sacrificing to superannuation" in Australian jargon) in addition to money contributed by their employer. Employers have to contribute 9% by law. Many in the public sector contribute more than this for example 15.4% at one quasi-governmental employer. So there is less incentive to make extra contributions than would be the case in the US. We don't have the "matching contribution" approach that is common in the US. And you really can't get it out again until you are in the 55-65 age bracket (depending on circumstances and when you were born). I've commented before that to simplify the system they could just get rid of pre-tax contributions. Makes even more sense when we see the low percentage of people that would be affected.

Only around 2% have a company car included in their salary package. I'm not surprised about that.

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