Australia / From the Founder
Business taxes
by Phil Ruthven AM, Founder IBISWorld
Apr 28 2019

Taxes are a touchy, misunderstood, and—more often than not—maligned part of work and life in Australia. The needy, special interest and noisy sectors of society are often far more willing to make demands than to pay for them. Many insist that the rich and well-off 40% of households should pay more taxes, and yet these households already pay 87% of all personal taxes! They are, in fact, carrying the vast bulk of personal taxation.

We are too heavily taxed, others say. Many suggest businesses make huge profits, but aren’t taxed enough. Again, neither claim is true. As always, facts ruin a good story.

So, some truths about taxation might come as a surprise.

Firstly, we are a very low-taxed nation among the developed economies of the world. That shibboleth that we are a highly taxed nation can go straight into the garbage bin, as the chart below reveals.

WORLD LARGEST ECONOMIES TAXES

Yes, but businesses make huge profits and don’t pay enough of the taxation load, some would claim. Well no, they aren’t very profitable, and their taxes are among the highest in the world.

The next chart shows how dreadfully low profitability is for the nation’s 2.3 million businesses, lower than government bonds for decades. Even the nation’s 2000 largest corporations, which account for nearly half the nation’s $5.2 billion revenue, have struggled to average a return on capital after tax of even 7%, which is half what they should be averaging, and a third of the world best practice level.

LONG TERM PROFITABILITY ALL ENTERPRISES

And the next chart shows that our businesses are among the highest taxed in the world.

WORLD CORPORATE INCOME TAXES

Which leads to the question of who carries the taxation imposts in Australia? The chart below shows all government revenue for 2018. Some 83.4% of all government revenue for that year was derived from taxation, the balance being derived from profits from GBEs and deficit spending. And of that $543 billion taxation, businesses collected about half.

GOVERNMENT ALL REVENUE

The final chart below shows just which taxes businesses collect. Business income tax accounts for just 36% of these taxes. So, business is a useful vacuum cleaner for governments to get their money.

TAXES BUSINESS

Of course, at the end of the day, individuals, households and foreigners pay all the taxes in a nation, either directly or indirectly via businesses. And they get all the income too (except for repatriated incomes to foreigners and foreign businesses) either through wages or dividends (directly, or via super funds).

So, we need to be rational rather than emotional or biased when it comes to taxation. A minefield of exaggerations, untruths and lies can get in the way of sensible and fair discussions regarding how much, and how best, to tax a nation and distribute benefits to the most in need.

Business too often gets a bad rap, unfairly, when it comes to accusations of high profits and low or evaded taxes.

For a printable PDF of this release, click here.