Release of Taxing Wages by the OECD

The OECD publication Taxing Wages 2004-2005 released this evening shows that average net tax rates for Australian singles and families have decreased since 2000.

The publication uses a new definition of average wage which now covers both service and manufacturing sector full-time adult employees. The average wage for an Australian in 2004-05 was $51,169 using this definition.

Table 1 below summarises the reduction in the ‘tax wedge’ for eight different family types. In this table the tax wedge is measured as income tax plus employee social security contributions plus employer payroll taxes less cash benefits, all divided by labour costs. The level of employer payroll taxes is 6 per cent, being the rate for New South Wales.

Underlying the improvement in the tax wedge have been the personal tax cuts in 2000-01, 2003-04 and 2004-05 as well as the improvement in family tax benefits for families with children.

The 2005 results show that Australia has the sixth-lowest tax wedge for a single employee among the 30 OECD countries. This is also true for other family types where Australia is ranked between the second- and eighth-lowest of the 30 OECD countries.

When compared in terms of US dollars, Australian single average workers have a net wage of US$28,000 which is the seventh-highest net wage of the 30 OECD countries. This is higher than the comparable US wage of US$24,206.

The comparisons for a single-income couple with two children earning the average wage reflect the same pattern. For Australia, the average net income was US$32,816, which was the sixth-highest of the 30 OECD countries and which exceeded the US average of US$30,081.

29 March 2006
CANBERRA

Contact: David Alexander
(02) 6277 7340

Table 1: The Tax Wedge: Income tax plus employee contributions plus employer contributions and payroll tax less cash benefits as a percentage of labour costs