I’ve often wondered where my tax dollars go. To answer this question, I thought I should develop something to work this out. The process is as follows:
- Determine what % of Government expenditure is financed by individual income taxation.
- Determine what % an individual contributes to this pool of total individual income taxation.
- Determine how this money is apportioned between the different sectors (e.g. Health, Education, Defence) based on the same ratios as the total Government expenditure.
Simply choose a financial year and enter in your taxable income (either by typing it into the text box directly or using the slide bar underneath).
The graph should update automatically and report how your taxable income was split between the different sectors of expenditure. You can also toggle between your personal contribution and the total expenditure of the Government.
Tax payers should be proud to contribute. Knowing that $x is going to health, $y to education may make people feel less like their money is going into the ether and more towards something of worth. Or, it may fuel the fire of complaint about where your tax dollars go and raise questions around the efficacy of Government spending programs – you’re entitled to do that too!
By taking the different spend mixes from the last two budgets, in conjunction with the different tax rate tables, a quick comparison can be made for the contribution an individual makes to a given sector for a given taxable income between years.
$7,732
- Your average (cf. marginal) tax rate is: 15.46%.- Individuals income taxation constitutes 43.33% of total Government revenue2.
- Your contribution constitutes 0.0000047% of the individual income taxation revenue received.
- Australia would need 21,087,688 tax payers paying the same tax as you to provide the Government with the same amount of revenue.
Your Contribution (2012-13) – in $
- Social security and welfare: $2,705
- Other purposes: $1,438
- Health: $1,254
- All other functions: $831
- Education: $608
- General public services: $453
- Defence: $443
Government Expenditure (2012-13) – in $millions2
- Social security and welfare: $131,656,000,000
- Other purposes: $69,994,000,000
- Health: $61,003,000,000
- All other functions: $40,433,000,000
- Education: $29,572,000,000
- General public services: $22,054,000,000
- Defence: $21,559,000,000
Government Revenue (2012-13) – in $millions2
- Individuals income taxation: $163,050,000,000
- Company and resource rent taxes: $82,442,000,000
- Sales taxes: $51,716,000,000
- Non-tax revenue: $21,445,000,000
- Petroleum excise: $16,980,000,000
- Other excise: $9,095,000,000
- Superannuation taxation: $8,250,000,000
- Carbon pricing mechanism: $7,690,000,000
- Customs duty: $7,370,000,000
- Fringe benefits taxation: $3,900,000,000
- Other taxation: $3,323,000,000
- Borrowings (based on accrual method): $1,010,000,000
{ 23 } Comments
Way to go, Swannie. Love your work, mate.
I thought it interesting to note that at $172,200, the average (cf. marginal) tax rate for an individual for FY10-11 is 30%. I’m not an accountant in even the loosest sense of the word, but I wonder if this is a threshold value of importance in that it is the highest taxable income you can receive before you start paying more than the current company tax rate (of 30%).
Obviously there are more factors to consider when deciding whether to be a sole trader/company, but I’m assuming if you earn less than this value, the tax advantages aren’t the same.
This isn’t advice, just a musing.
Also, for FY09-10 this was $156,900.
Maybe the accountants out there can suggest whether a individual earning $160k in FY09-10 that was registered as a company (to pay the lower average rate of 30% vs. 30.16% – about $250 difference) would then benefit from deregistering and become a sole trader in FY10-11 (29.47% vs. 30% – $850 difference)!
If only those numbers were anywhere near correct.
My contribution is a lot more than you numbers show. Petrol tax, GST, Rates, Land tax, stamp duty et al make you puny 20% figure look positively anemic.
How about closer to 50% or even more
I like your work (making this page), and yes, I am not happy about where “it” is being spent.
This doesn’t take into account all the other surcharges, fuel levies, GST, Rates, etc. that we pay.
Perhaps the page could at least be updated to reflect GST as well.
I wish you would extend this work to take in GST, Land Tax, Rates, etc. A few years ago I was caught twice with the very unpopular Exit Tax from NSW Govt. It was rescinded weeks after charging me but never refunded. All of us need to know how much we are being charged. The American Founding Fathers recommended in their Constitution that Government be kept small, but they keep getting bigger and the money they administer is often squandered unnecessarily i.e. ceiling insulation, school halls, etc. There are Americans doing Shadow Statistics, that is the real info not Govt.info, but I don’t see anyone doing similar work here. Are you interested in extending your work to include all forms of taxation? Let me know please. Loren.
I second all of the above. And loren is right; http://www.shadowstats.com calculates American economic statistics as they did in the early eighties. The result is mindboggling. The real unemployment rate in the USA is closer to 22%; the green shoots were statistical tricks;there is NO recovery in the USA and in fact it’s about to get a whole lot worse.
I love the work this guy here is doing! it is empowering to know where one’s tax dollar goes, and makes us more sceptical of politicians’ rhetoric.
Does the “social security and welfare” category include all those circular payments like baby bonus and all the other stuff aimed at letting families on average earnings pay no tax? The amount going to welfare is quite breathtaking.
I’d be interested to follow through the total tax on a common item say a loaf of bread. With all the state and federal taxes an duties from the seed through transport the various companies involved in the chain it would be interesting to see the compounding effect of taxation.
When deciding whether to be a sole trader or company, you need to look at your marginal rate, not your average rate.
If your business earns more than $85k in net profit before tax, then you probably should set up a company.
@Eric
I’m not sure I understand why you would have to look at your marginal tax rate?
If my taxable income was $85,000 in 2010-11 wouldn’t I pay $19,400 in tax (= 22.82%), but as a company $25,500 (= 30%; the company tax rate?) The reason being that personal income tax is a progressive tax, whereas the company tax rate is a flat 30%?
@Fred, Daniel, Loren and Sheryl
Thanks for the feedback. I looked into doing this, but there were just too many parameters and unique circumstances to calculate this is a simple way.
Maybe if I paid less tax, I wouldn’t have to work as much and with the free time could develop the calculator
@Alex
I’m not too sure exactly what makes up the “Social Security and Welfare”, but I would assume that the Baby Bonus, funded by the Government, would fall under this category.
@Craig
Another really good suggestion. A flow map identifying all taxes, duties etc. from raw material to finished good would be really interesting to see.
Can we see some proof of where the moeny actually goes, any reciepts /documents please
@truth warrio
I think Treasury looks after this.
I third what Fred Daniel Loren and Shryl mentioned, but understand that our taxing system is so complex, that Ryan would need a year off to build a model to include all taxes.
Btw,did you know taxes make up over 40% of your house purchase price if you build in Sydney?
Income tax as a % of Government revenue is approx 40% based on Ryan’s pie chart above.
It works out for me being (paying 27% of my salary as income tax) to be a total of approx 68% of my salary – ouch – that ultimately covers government spend inc, gst and other taxes that have to be passed on to consumers (payroll, etc), duties, excises, et al.
There is a really good site that similarly shows the breakdown of your taxation contributions, but with more granularity on what makes up these larger spend categories:
http://www.taxcheck.com.au
A few things that I thought were really telling was that the “Social Security & Welfare” spend area is predominantly made up with assistance to the aged (as opposed to what I suspect is the preconception that it is the unemployed). Family Tax Benefits are also a very high contributor.
Another point of interest was that non-Government schools receive more government expenditure than Government schools. That said, it would be good to understand the number of students serviced by each (i.e. are there 4 times as many kids in NG schools?)
Your calculations are correct in that the average personal tax rate results in lower tax paid than a company at an income of $85k. What you have forgotten is that the business owner would never keep retained earnings in the business if his/her personal income is less than the taxable income level at which the marginal personal tax rate equals the company tax rate ($80k in FY2012). If his business make $85k this year before owner’s wages and tax, then the owner should pay himself a wage up to $80k. He would pay $17,550 tax on that, and the company would pay $1500 tax on the remaining $5k in retained earnings. The total tax bill for the business owner and his business is $19,050, which is less than the tax paid if the owner had stayed a sole trader ($19,400). By incorporating, the businessperson saves $350 in tax over what a sole trader would pay.
This is why you need to look at marginal tax rates, and not average tax rates. If your marginal personal income tax rate is greater than the company tax rate (30%), then you should incorporate.
If you’d like further clarification, feel free to contact me.
Thanks Eric. This makes perfect sense! Much appreciated.
Using the simplistic pie chart provided in the budget overview without explaining more of the breakdown of “generel” government services is a bit misleading. From what I could gather from the budget website, that amount is including things like law enforcement, gst-related payments to the states, the remnants of the stimulus package, natural disaster relief, environment spending…the list goes on. On a more detailed budget breakdown, general government services is only about 6% of spending, most of which goes to DFAT, AusAid, Treasury and the ATO.
@Fraser As mentioned above, http://www.taxcheck.com.au is a great site for providing more detail around the budget breakdown if you are interested.
Boom shakalaka! Swannie got game.
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