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11. Taxation and labour and capital flows

Summary

While the taxation regime can be an important factor at the margin in shaping the economic decisions of individuals and companies on where to work and invest, it is only one of a wide range of complex considerations which influence such choices.

Of the top 10 countries/regions which high-skilled persons in Australia depart to, Australia experiences positive net migration of high-skilled persons from all except for Hong Kong (Special Administrative Region (SAR) of China), where the net loss is small. As all these countries/regions have all-in top marginal tax rates lower than Australia’s, it would appear that there are many drivers as to why high-skilled people migrate to Australia.

With respect to foreign investment and particularly foreign direct investment (FDI), again a whole range of factors, not just tax, come into play. Australia has a corporate tax rate less than or broadly equal to four out of five of its top FDI contributors, the top three of which have comprehensive foreign tax credit (FTC) systems.

11.1 Introduction

In an increasingly integrated global economy, with mobile labour and capital, a number of factors influence the economic decisions of individuals and companies on where to work and invest. For companies, these factors may include: macroeconomic stability; resource endowments; workforce skills; quality of infrastructure; effective economic and political institutions; efficient, open and appropriately regulated financial, product and labour markets; openness to new technology; and an entrepreneurial culture. For individuals, these factors could include: potential gross earning opportunities; the cost of living; the availability of education and health services; leisure opportunities; environmental amenity; and lifestyle preferences. A country’s tax regime can be an important factor at the margin in influencing the economic decisions of companies and individuals. But tax is only one of a wide range of complex considerations which influence such decisions and should not be singled out as the most important factor affecting these choices.

This chapter broadly looks at the labour and capital flows between Australia and the rest of the world and what impact (if any) the tax system may be having on these outcomes. The chapter concludes with information on Ireland and the emerging major markets of China and India (see Boxes 11.1, 11.2 and 11.3).

 

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