Daily Bulletin

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

I’m guessing you earn less than A$200,000.

And I’m guessing you think you’re missing out. People keep telling you so.

On one side of politics Labor leader Anthony Albanese says anyone earning $200,000 dollars a year “can’t be described as being in the top end of town”.

On the other, Prime Minister Scott Morrison parries with interviewers when asked whether people on $180,000 to $200,000 (the biggest beneficiaries of his planned 2024 Stage 3 tax cut) are “high income”.

“They’re hardworking people working out on mines and difficult parts of the country,” he says. “They deserve a tax cut.”

Hardworking or not, Australians on more than $200,000 are rare. And an awful lot of them don’t work at all.

$200,000 is unusual

I’ve never quite understood why politicians are so keen to tell us such incomes are normal. It might be because they are on them. Each backbencher gets $211,250 plus a $32,000 electorate allowance (boosted by $19,500 if they turn down the use of a private-plated vehicle) plus home internet and travel allowances.

Very detailed tax office figures (updated on Monday) tell us what the rest of us earn, all 14.3 million of us.

Only 2% of those required to pay tax earned more than $211,365. Only 3% earned more than $188,667.

Everyone else — the other 97% — earned less than $188,667, most of them a good deal less, and many more earned even less and weren’t required to pay tax.

Other Australians earn nothing like what you think. If you're on $59,538, you're typical What you report to myGov, the ATO reports to us, with a lag.

The figures released on Monday are for 2018-19, because it takes a while for the tax office to receive and process all the forms. 2019 is when Albanese said $200,000 wasn’t the “top end of town”, 2018 is when Morrison unveiled Stage 3.

The typical taxable income (typical in the sense that half earned more than it, half less) was $59,538. If that’s what you’re on, you’re more likely to find people who earn close to what you do than anyone who earns more or less.

We can get an idea of how lonely it is at the top by examining the top 1%, those Australians with a taxable income of greater than $350,134.

There aren’t many of them, just 110,613 — 82,258 men and 28,355 women.

Only 39,209 have taxable incomes of more than $500,000, and of these only 14,467 have taxable incomes of more than $1 million.

Life at the top needn’t be taxed

You’re probably thinking there’s a difference between taxable incomes and actual incomes, and the tax office figures show you’re right.

15,358 Australians reported total incomes of more than $1 million. By the time they had applied legitimate tax deductions, the number had shrunk to 14,467.

Some of these million-dollar earners were able to shrink their taxable incomes very low indeed. 45 cut their taxable incomes to less than the tax-free threshold of $18,200 — meaning they didn’t have to pay anything, not even the Medicare levy.

Another eight managed to escape the Medicare levy even though their taxable incomes were above $18,200, and another 21 escaped income tax while paying the Medicare levy.

Read more: Yes, some millionaires pay no tax, but crimping deductions mightn't help

Many of these millionaires weren’t “hardworking” in the sense Morrison meant. Only 9,144 of the 14,467 Australians on taxable incomes of more than $1 million worked. Only 17,883 of the 57,120 Australians on more than $250,000 worked.

Only nine of the 45 million-dollar earners who cut their taxable incomes to less than the tax-free threshold worked. 27 received so-called franked dividends from companies that had paid tax, enabling them to cut their own tax bills or receive rebates from the tax office. On average, each received dividends of $2.25 million.

Many who aren’t taxed are generous

Seventeen of the 45 million-dollar earners received capital gains, on average $6.4 million each. 38 received interest, averaging $290,000 each.

Against that were set expenses, small and large. Three claimed for work-related car expenses averaging $27,340 each, 13 claimed expenses averaging $57,200 for assistance with tax affairs, eight claimed for previous losses from farms averaging $684,000 each, and eight for losses from other businesses averaging $408,000.

But by far their biggest expense was donations. 14 gave away a total of $161 million in gifts or tax-deductible donations — an extraordinary average of $11.5 million each.

Most of us aren’t like these people.

Most of us claim more modest deductions

Three-quarters of Australians in the tax system earn less than $89,173.

Those on that income typically claim between $1,500 and $1,900 in deductions (men claim more than women) and, thanks to negative gearing, claim losses on properties of between $1,800 and $2,600 (again, men claim more than women).

Such Australians typically report between $1,200 and $2,100 in capital gains (more for women than for men).

If higher-earning Australians are unaware of how most of us live, it’s understandable. Surgeons mix with other surgeons. On average each of Australia’s 4150 surgeons earns $394,303, making surgery our highest-paying occupation.

We mix with, and marry, people like us

And they increasingly marry each other. In 2010 the Productivity Commission found that 68% of Australia’s high earners were married to other high earners. A decade earlier it was 49%.

And high earners live near each other. The average income in Sydney’s Double Bay (Australia’s highest-earning suburb) is $202,598. The average income in Ruse in Sydney’s Campbelltown is $55,100.

People in Double Bay don’t drive through Ruse on their way to the city.

Read more: The Low and Middle Income Tax Offset has been extended yet again. It delivers help neither when nor where it's needed

In the United States it is often the other way around. There, low-income suburbs are more likely to be near the city, meaning that high-income Americans at least see them as they go in to town.

That most of us have little idea of what others earn suits those in charge when they propose tax cuts skewed to high earners.

They can con us that most of us will be better off, and those on high incomes can con themselves they are not already better off.

Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

Read more https://theconversation.com/other-australians-earn-nothing-like-what-you-think-if-youre-on-59-538-youre-typical-162251

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