Australia's Future Tax System

Architecture of Australia's tax and transfer system

5.9 OECD comparison of Australia's tax‑transfer system

Compared with other OECD countries the Australian tax‑transfer system is highly redistributive to those with least means. Australia's spending on social security is below the OECD average (Chart 5.13). This reflects a range of factors, including benefit levels that are unrelated to previous earnings, employer rather than public provision of sick leave and other important structural differences from most OECD countries.

Chart 5.13: Social welfare spending as a percentage of GDP in 2001(a)

Chart 5.13: Social welfare spending as a percentage of GDP in 2001(a)

  1. 1999 data for Turkey for 2000 and 2001 OECD averages. OECD averages exclude countries where data are not available for related time series. OECD‑21 exclude Austria, Czech Republic, Hungary, Iceland, Korea, Mexico, Norway, Poland and Slovak Republic.

Source: Whiteford (2007).

Despite Australia's relatively low level of aggregate spending, of the 27 OECD countries for which data are available, it has the highest proportion of public transfers flowing to the quintile of the population with the lowest private incomes (Chart 5.14). It also has the lowest rate of direct taxation on this quintile of the 19 countries that provide these data. This reflects the highly targeted nature of the Australian tax‑transfer system.

Chart 5.14: Proportion of cash transfers received and direct taxes paid by
households in the bottom quintile of the private income distribution — OECD 2005

Chart 5.14: Proportion of cash transfers received and direct taxes paid byhouseholds in the bottom quintile of the private income distribution — OECD 2005

  1. Tax data not available.

Source: Whiteford (2005).

International comparisons of transfers can be complex because of the extent to which some countries often have short‑term income related payments. However, the fundamental social assistance component of Australia's support to working aged families and individuals in periods of unemployment or other joblessness, provides a much higher replacement rate of income than most other OECD countries. Of the four family types for which the OECD publishes data, Australia has the highest replacement rate, relative to median disposable household income, for three family types, including both family types with children (Chart 5.15).

The highly targeted nature of the tax‑transfer system has resulted in Australia having higher effective tax rates (ETRs) for certain household types than in other OECD countries. In three of the four household types with children, Australia has ETRs above the OECD average (OECD 2007b).

Chart 5.15: Net incomes of social assistance recipients relative to median
household disposable income — OECD 2005(a)

Chart 5.15: Net incomes of social assistance recipients relative to medianhousehold disposable income — OECD 2005(a)

  1. The OECD data for Australia is based on people receiving allowances. The replacement rates will be higher if the particular family type shown is receiving a pension.
  2. Data for Italy and Turkey not available.
  3. The lone parent family shown has two children aged four and six years.

Source: OECD (2007c), FaHCSIA estimates.