Australia's Future Tax System

Architecture of Australia's tax and transfer system

5.1 Australia's tax to GDP ratio by OECD standards

Australia's tax to GDP ratio is the eighth lowest in the OECD and substantially below the OECD average of 36.2 per cent (Chart 5.1). Government spending in Australia is the third lowest of all 30 OECD countries (Chart 5.2).

The gap between Australia's tax to GDP ratio and the OECD average has remained relatively constant at around 5.5 percentage points of GDP since 1965. Compared with the nine most comparable OECD countries (see Box 5.1), Australia's tax to GDP ratio is about average. However, two of the nine countries with lower tax to GDP ratios than Australia also run significant fiscal deficits (the United States and Japan).

Chart 5.1: Tax revenue as a percentage of GDP — OECD 2005

Chart 5.1: Tax revenue as a percentage of GDP — OECD 2005

Source: OECD (2007a).

Chart 5.2: Size of government — OECD 2007(a)(b)

Chart 5.2: Size of government — OECD 2007(a)(b)

  1. Data for Mexico and Turkey not available.
  2. Revenue refers to receipts of tax and non‑tax revenue.

Source: OECD (2008a).

Box 5.1: Comparator countries — the OECD‑10

In the International Comparison of Australia's Taxes (Australian Government 2006) nine OECD countries were identified as being more suitable for drawing comparisons about specific tax settings. A key determinant of the countries selected was that they had broadly similar revenue to GDP and government spending to GDP ratios, as well as a similar role of government in their economies. One country, the Netherlands, was also included on the basis that it has strong investment and trade links with Australia and offered some interesting comparisons in terms of its capital tax settings. These nine countries — Canada, Ireland, Japan, the Netherlands, New Zealand, Spain, Switzerland, the United Kingdom and the United States — are also used in this paper to draw international comparisons of Australia's tax settings, in addition to the broader 30 OECD countries.