Who actually pays tax and what does this mean for our economy?

1. Who actually pays tax and
what does this mean for
our economy?
A sketch in six slides
May 2015

2. Tax: who actually pays it and what
does this mean for our economy?
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Who bears the final burden of a tax can be quite different
from who, or what, the tax is levied on. Taxes change wages,
prices, and returns on savings. This can affect people’s
decisions on how much they work, spend and save.

3. Personal income tax:
who actually pays it?
The majority of personal income tax is paid by workers,
directly from their pay.
So, for some people, personal tax, alongside means-tested
government income support payments, can reduce the
incentive to work, because a portion of a worker’s additional
income is lost to tax and the withdrawal of assistance.
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4. Payroll tax: who actually pays it?
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Payroll tax is levied by States and Territories. It is generally
paid by large employers, based on the total wages they pay
their workers, over a particular threshold.
Businesses often adjust for payroll tax by paying lower
wages to their workers.

5. GST: who actually pays it?
The GST also affects rewards from work as it makes goods and
services more expensive. This means individuals are able to
purchase fewer goods and services from the income they receive.
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6. Company tax: who actually pays it?
While company tax is levied on companies, research shows
that it is ultimately workers who bear much of the tax burden.
This is because company tax reduces the attractiveness of
investment. Less investment means lower production of goods
and services, resulting in less output per worker and lower
wages. So, company tax also affects incentives for workers.
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7. A more efficient tax system…
…relies less on the taxes that affect incentives the most.
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1. The Australian Government the Treasury, March 2015, Tax discussion paper, page 25
Economic cost of different taxes1