Taxation system of Australia needs no introduction. Many schemes prevail in field of Personal taxation in this country which mitigates all the associated risks. The 1915 federal income tax was levied on individual taxpayers at progressive rates in Australia. A moderately high income threshold exempted most wage and salary earners.
The rates of tax imposed ranged from 3 to 25 per cent. The Pay-As-You-Earn (PAYE) system, where employers deduct tax from employees’ pay, was introduced by the South Australian government in 1942. This system allowed income tax collection from wage earners in lower income groups, which had been impracticable without a system of taxation at source. The PAYE system was more convenient for taxpayers, created a more even flow of revenue for government. Individuals in the top income earnings accounted for the vast majority of personal income tax paid.
Thereafter the scope of the personal income tax was progressively broadened such that by the early 1980s the share of personal income tax paid by the top income group had fallen to around half, a level that has since been broadly maintained. This lead to reduction in marginal tax rates applying at higher levels of income.
Australia’s top marginal tax rate has decreased over the past 50 years from over 75% in the 1950s to 46.5% as of 2006 and even further reduced in last few years. Notwithstanding the increase in the proportion of personal income tax paid by lower income people, Australia’s average effective tax rate on the income of a range of household types is in the lowest eight out of the 30 OECD countries.
From its origins, the basic tax unit in Australia for income tax purposes has been the individual, although, as is the case today, the early income tax systems did recognize family circumstances with a series of deductions and credits for taxpayers supporting dependants. More recently there has been a greater focus on the overall impact of taxation and benefits on household incomes, particularly families.
In 1945 a ‘Social Services Contribution’ was introduced, which theorized a part of income tax revenue for social welfare. The primary motivation was to make increases in income tax more attractive, rather than as a means to separate out social security contributions from general taxation. In the early 1950s, income taxes and social services taxes were merged allowing a simplification of the income tax return.
Since then, no specific tax levied to pay for social security benefits in Australia, unlike most other OECD countries.
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