In response to Andrew Marjason’s letter to the editor (Issue 102, 18 April 2006), I believe the essence of your editorial ‘The smart ones leave the country’ (Issue 97, 7 February 2006) is correct
In response to Andrew Marjason’s letter to the editor (Issue 102, 18 April 2006), I believe the essence of your editorial ‘The smart ones leave the country’ (Issue 97, 7 February 2006) is correct.
As the Treasurer’s recent report on international tax systems confirmed, Australian tax rates are much higher than those in the major Pacific Rim countries with whom we do most of our business. It is also the case that our government relies disproportionately on income taxes for its revenue compared with most other countries.
High income taxes inevitably depress work incentives for higher and lower earners alike. Higher earners in Australia face one of the region’s highest top rates of tax, cutting in at what is by international standards a modest level of income. Those lower down face pernicious ‘effective marginal rates’ as every new dollar earned is eaten up by a progressive income tax coupled with withdrawal of means tested welfare payments.
There is no conclusive evidence about how all this is affecting international labour mobility (it’s very difficult to devise research on this), but a million Australians currently live overseas, and many of them are sought-after workers commanding high salaries. At least some of them are likely to be deterred from returning to Australia by our insistence on retaining a very high top marginal tax rate of 48.5 per cent.
Perhaps more important, though, is business mobility. From the point of view of an employer, what matters in calculating the costs of labour is not somebody’s net wage, but the cost of their total package. If employees are paying 48.5 per cent tax at the margin, employers have to pay a $2 raise to deliver a $1 increase in take-home wages. High income taxes, in other words, fall eventually on employers.
In an increasingly open world, businesses will tend to migrate to places where their wage costs are lower. For those looking to locate somewhere in the Pacific Rim, one of the least attractive places for them to come, given its current tax regime, is Australia.
– Professor Peter Saunders, social research director, Centre for Independent Studies
