Remember the heady days of 2019? They were pre-COVID with fewer restrictions on our movement and a greater ability to get together.

Reminiscing about those pre-COVID days took me back to a large group dinner at a restaurant in which 100 people came together to celebrate. It was a day of freedom, fun and frivolity. The drinks flowed, whether one drank water or wine, the food was plentiful, the jokes – some a little risqué, some corny – added to the convivial atmosphere.  Then came the bill, with a side order of complication.  While some had lived large, others had supped on salad. This large group, in various states of sobriety, needed to decide how to split the bill. The fair thing might be for each to pay for their own consumption but even that was complicated. Some couldn’t really afford to pay.

Now, you may wonder why people came to dinner if they couldn’t afford to pay but what if the restaurant was Scotty’s Famous Restaurant (aka our Federal Government) and the diners were taxpayers paying for government services via taxation. How does Scotty do it?

Each year, the ATO distils tax information from 14.7 million people into a profile of 100 Australian taxpayers.  It’s a nice way of making information more digestible by converting a percentage to real numbers.

So, let’s take a closer look at the merry 100 diners in Scotty’s Famous Restaurant. But, before we do, as with pre-COVID days, the numbers are from 2018/2019 because:

(a)  We can’t have 100 diners together in a restaurant anymore (at least, not in Victoria) and some state borders remain closed.

(b)  The bill is paid after the meal or, to put in in tax terms, we pay tax after the end of the financial year; and

(c)  Some people reach for their wallets a little slower than others, submitting their tax returns late.

As you can see from the illustration below, Scotty’s Famous Restaurant has drawn people from all over Australia.

The split of diners is fairly representative of the population split in Australia.

But, the number of diners at the table only represents bums on seats. It doesn’t tell us what each has paid or consumed. Some will pay more than others and Scotty’s Famous Restaurant isn’t just famous for its food. It’s famous for its payment method. High income earners pay more than low or no income earners. Why? Because our tax system is predicated on the same principle as our health system, the healthy subsidise the sick, and the high income earners subsidise the lower income earners.

So, how did our diners pay? Nine people paid 48% of the bill while 25 paid no tax.  Some felt that was unfair until the discussion at the table turned to the broader contribution each diner makes to society. Why should a nurse, a teacher, an ambulance driver or a police officer earn less than an engineer, architect or top footy player? 25 of our diners were happy to be earning income while out dining, ten of these operate a business in their own name, while the remaining 15 earn rental income (only 6 enjoy a rental profit).

Scotty knows that paying the bill can spoil a good dinner so he plans in advance and asks for money upfront. Eighty of our diners paid too much and received refunds, while 13 people didn’t pay enough and, not willing to do the dishes, they had to pay more. The remaining seven of our diners, we can call them Goldilocks, paid exactly the right amount.

So, who paid what exactly?  Nine of our diners paid 48% of the bill. Yes, that’s right. Ending the restaurant parable for a moment and returning to real life, 48% of income tax is paid by 9% of taxpayers. The next 31% of taxpayers paid 40% of all net tax while 25% of 14.7 million taxpayers paid no net tax.

We hope you enjoyed this visit to Scotty’s Famous Restaurant. While the restaurant itself is a fantasy, the numbers are a reality and perhaps remind us of the contributions we make, whether monetary or otherwise, are also investments both for our own future and the future strength of Scotty’s Famous Restaurant, aka the great fertile food and cultural bowl we know as Australia.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

During our lifetime we all pay tax on our income at some point.  This is called Pay As You Go tax (PAYG).  In Australia, our PAYG is a progressive tax, which means the more you earn the more you pay.  This and all other taxes are defined as the contribution to the government revenue compulsorily levied on individuals, property, businesses, goods etc.  This money is used to provide those services we expect in our society, roads, hospitals, schools etc.

PAYG tax can be confusing, especially if you have a varied income.  Some weeks you will only earn a small amount and so may not pay tax at all but the next you will work extra hours perhaps even on a weekend and suddenly you lose a lot in tax.  In Australia, our rate of PAYG is based on our annual income but this is calculated based on each pay event.  Below is a table from the Australian Taxation Office (ATO) showing the individual resident rates of tax for the 2018-2019 financial year.

**These rates do not include the Medicare levy.

For a lot of people where the confusion will come in is when they are changing tax brackets because of their variable earnings.  If you are a part-time or casual worker but perhaps do some extra work during holidays or peak work periods you could see your weekly income move from the second tax bracket to the third, which means a significant increase in your tax for the week.  It doesn’t necessarily mean you are going to earn over $37,001 for the year but because our tax is calculated on each pay event you will be taxed that period as if you are.

For a working example, we have someone who works casually and this week earns $519 before tax.  They would pay $41 that week in tax.  The next week is busy and they work extra shifts and earn $769 for the week, the amount of tax is $102.  When we look at the weeks individually the employee has jumped up in tax brackets.  Come to the end of the financial year they have only earnt $30,000 for the year.  They will be issued with a PAYG statement showing this and also the amount of tax they are have paid throughout the year.  This is when the ATO will look at those amounts and a refund would be issued for the overpaid tax.

For many Australians they find this confusing and unfair, however, the alternatives can be even more confusing and can result in people having large tax bills at the end of the financial period to pay resulting in hardship and meaning that the Government doesn’t get the income it is expecting.  This can have serious flow-on effects for all of the economy.

Please note this article provides general advice and examples, it has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today.

Read more articles in our Financial Literacy series.