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Stop grumbling about tax, we all benefit along the way

Date

Our tax system shows we live in a fairly caring and civilised society.

'The budget acts as a giant, multi-faceted mutual support scheme.'

'The budget acts as a giant, multi-faceted mutual support scheme.' Photo: Virginia Star

LISTENING to all the argy-bargy over the budget update makes you think - what strange things budgets are. The government spends all this money - hundreds of billions a year - but where does it come from? From us, of course. The politicians use the budget to take money from us with one hand then give it back with the other.

They have one set of public servants to take our money from us and another to give it back. What's the point of all this churning? Wouldn't it be a lot simpler and cheaper to have lower taxes and lower spending?

If we each got back pretty much what we put in, it would indeed be a pointless, wasteful exercise. In reality, high-income earners put in a lot more than they get back, whereas low-income earners receive a lot more than they pay in taxes.

But even that doesn't adequately describe the rearranging brought about by the budget.

Every six years the Bureau of Statistics conducts a study where, using several of its surveys, it takes all the taxation we pay - federal and state - and attempts to attribute it to different classes of household. It does the same for all federal and state government spending.

Of course, not all the taxes we pay can be attributed to households - company tax, for instance. Similarly, not all government spending can be attributed - spending on defence or roads, for instance.

In the latest study, for 2009-10, it managed to attribute $194 billion, or 62 per cent, of total government revenue and $234 billion, or 51 per cent, of total government spending.

Remember Shakespeare's seven stages of man? The study divides Australia's 9.8 million households into 10 main life-cycle stages. Whether your household is a net payer or net recipient depends heavily on where you are in the life cycle. We'll limit ourselves to six stages.

Most people start their working lives as single and under 35. On average, people in this category pay $226 a week in income tax and $115 a week in indirect taxes, such as the goods and services tax and various excises.

They get back very little in cash benefits ($28 a week) and not a lot more in benefits in kind, $80 a week, mainly healthcare plus a bit of public spending on tertiary education. So, on average, younger singles pay $233 a week more in taxes than they get back in benefits.

The next typical life stage is being young (under 35) and married, before children start coming along. Households in this category - where both partners are likely to be working - pay an average $384 a week in income tax and $196 in other taxes. They get back virtually nothing in cash benefits ($12), but $136 of benefits in kind, mainly healthcare and tertiary education. So, on average, young childless couples pay no less than $432 a week more in taxes than they get back in benefits.

Once children start arriving, however, the tables turn. Somewhat older couples with dependent children, the eldest of which is aged between five and 14, pay more income tax ($454) and a bit more indirect tax at $227 (sign of a more frugal lifestyle).

Cash benefits jump to $133 a week (mainly family tax benefit) and benefits in kind leap to $608 a week (mainly school education, but also a lot more healthcare and a bit of childcare subsidy). So, on average, couples with a child or two get back $60 a week more than they put in. They think they're paying a lot of tax but, in truth, they're getting a net subsidy from other taxpayers.

Once the children grow up, however, the tables turn again. Couples with non-dependent children average $604 a week in taxes. Against this, they get cash benefits of $176 and benefits in kind (overwhelmingly healthcare) of $328.

So, on average, older working couples revert to paying more in taxes than they get back, to the tune of $100 a week.

We've reached the last two stages of life: couples 65 and over, then single people 65 and over. On average, largely retired couples pay next to nothing in income tax and a bit in indirect taxes, totalling $168 a week. Against that, they get cash benefits of $378 (mainly the age pension) and benefits in kind (mainly healthcare) of $481.

So, on average, retired couples get back $691 a week more than they pay. For surviving single retirees it's a net gain of $475 a week.

See what all this proves? As well as redistributing income from rich to poor, the budget acts as a giant, multi-faceted mutual support scheme. At some points in your life you're a net contributor, at others a net recipient.

The system requires those without dependents to subsidise those with, particularly when the little blighters need educating. It requires the well to subsidise the sick. It requires those who work to subsidise those too old to work.

I think it's a good system, a sign we live in a reasonably caring, civilised society, where those in need get supported by the rest of us. It's a reason we should pay our taxes with a lot less grumbling. The pity is, the system's so complex and convoluted it's not until you see a special study such as this that you realise how it works - it's inbuilt fairness and solidarity.

Something to think about next time you're tempted to justify a demand on government because you've ''paid taxes all my life''. You've also been benefiting all your life.

Ross Gittins is a senior columnist.

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284 comments

  • Seems only the very rich and the very poor avoid the system.

    Commenter
    Salisbury Al.
    Location
    Salisbury
    Date and time
    October 24, 2012, 8:20AM
    • @Salisbury Al

      Yeah and the rest of us not only have ourselves to subsidise. We also pay for foreign aid and accomodation for all those wonderful people arriving on our shores uninvited. Meanwhile, the Government drops the rebate on private health insurance, continues to shell out NSW's GST revenue to the rest of Australia (i.e. siphoning off Government funding from Australia's most populous state to others), introduces schemes such as the BER that lines the pockets of contractors while nothing is achieved, the list goes on. Kerry Packer was right: "Of course I am minimising my tax. And if anybody in this country doesn't minimise their tax, they want their heads read, because as a government, I can tell you you're not spending it that well that we should be donating extra!"

      Commenter
      Malik the magic sheep
      Date and time
      October 24, 2012, 10:05AM
    • Ross rather crude generalisations - get to the point of why PAYG tax is higher than Company tax ---answer its easy to collect from workers
      The tax debate needs to handle the ever increasing secondary taxes such as GST ( remember the States still expect the GST revenue and have not given up their taxes as expected). Families have incrresing bills especially from utitities

      Commenter
      mark
      Date and time
      October 24, 2012, 10:14AM
    • Taxation is just legalised theft, where money is forcibly exorted from people who have earned it and given to people who haven't.

      The productive middle classes are forced to support the parasitic classes, which includes the welfare dependent poor and the very rich who exploit tax loopholes by employing tax accountants.

      Yet whenever a government decides to return a small portion of their own money back to the productive people, all sorts of parasites start moaning about "middle class welfare".

      And the middle classes are expected to pay exorbitant levels of taxes throughout their lives, just because they will get some back when they retire? Except of course, the old age pension won't be available then, which is why superannuation is really just another tax (which also gets taxed itself).

      After taking their own generous cut first, politicians just use other people's money to bribe their constituents and get their votes. Elections are just an advance auction of stolen goods.

      We are getting close to the tipping point, where the majority of people receive more in government handouts than they pay in taxes. The incentive to work is destroyed, and societal collapse will follow, just as it always has since the days of the Roman empire, or just look at Greece for a more recent example..

      Governments have tried to delay the inevitable day of reckoning, by borrowing from the future and going deeper and deeper into debt, but as indicated by the GFC, this can't go on for much longer.

      Before this decade has finished, this will become obvious to everyone.

      Still happy?

      Commenter
      Greg
      Date and time
      October 24, 2012, 10:39AM
    • @ Mark, on top of 30% company tax, companies also pay your super, payroll tax, workcover, dividends to the shareholders, etc. Also companies provide jobs to you and me. It is the obligation of each honourable citizen in this country to pay taxes and keep our society to move forward as a whole. We all benefit from this system in different ways and at different stages of our lives. There is no perfect system in the world, but one that works the best. Also, based on your issues, this should be the solution: get rid of all the state governments!

      Commenter
      Phil
      Location
      MOSMAN
      Date and time
      October 24, 2012, 10:46AM
    • Phil - companies pay super and PAYG tax on your behalf. But they subtract the money from your wage to do so. Those amounts could be paid to employees with the responsibility to forward to the ATO and the Super provider the appropriate amount themselves.

      Commenter
      Ross
      Location
      MALLABULA
      Date and time
      October 24, 2012, 11:07AM
    • Can Howard's baby bonus.

      Commenter
      Bennopia
      Date and time
      October 24, 2012, 11:32AM
    • Ross

      You are kidding, aren't you?

      It's bad enough doing one's BAS, let alone having the individual pay their tax dues / super on whatever time basis could apply according to your suggestion.

      Not hard to imagine the administrative nightmare this would create.

      Commenter
      $keptic
      Location
      Melbourne
      Date and time
      October 24, 2012, 11:37AM
    • Ross, now i'm sure you're living down a rabbit hole. Have you not met people who have litterally paid millions,working every day and then get nothing in retirement. They don't go to hospitals, paid for their kids education, their own education was paid for by their parents. I'm amazed at those people because all they have done is give in tax as well as to the local community, as well as fight for the country. I pay my tax but i feel more of an inclination to give something back as a tax payer to these people than to the lot you sprout on about. I see them when they are in need in their 70s and 80s and all they want is just a little help from the government and all they get is a swift kick in the guts, as they government says they can afford it themselves (not living in mansions but country towns). These are not my parent but others. Go back to your rabbit hole with your selective analysis and interpretation.

      Commenter
      Don't Know
      Date and time
      October 24, 2012, 11:49AM
    • Skeptic - I am not sure whether you meant me or Ross Gittins.

      If me - I was not suggesting that individuals organise their own PAYG and super contributions. I was pointing out that companies pay them on behalf of their employees using the employee's money.

      Commenter
      Ross
      Location
      MALLABULA
      Date and time
      October 24, 2012, 12:12PM

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