Australians may pay more taxes than Americans, but here's what they get for their money

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Australians and Americans both like complaining about how much they pay in taxes. A Gallup poll found that 57 percent of Americans think their federal income tax bill is too high. A Per Capita survey pegged the number of similarly discontented Australians at 45 percent.

That's a 12 percent difference despite the fact that "Australians pay slightly more than what the average American pays," Brendan Coates, a fellow at the Grattan Institute, an independent Australian public policy think tank, tells CNBC Make It.

Though Aussies may have gripes, they don't seem too bothered by them. This year's World Happiness Report from the United Nations placed Australia, along with Norway, Denmark and other high-tax, high-benefits countries, among the top 10 happiest countries in the world.

What Australians pay in taxes

According to the Organization for Economic Cooperation and Development (OECD), which analyzes the tax burdens of 35 countries, Australians paid on average $17,146 USD per capita in 2014 in "total tax revenue," while Americans paid $14,115 USD per capita. So, on average Australians pay about $3,000 more than Americans a year.

OECD (2017), Tax revenue (indicator). doi: 10.1787/d98b8cf5-en (Accessed on 26 October 2017)

Both countries veer close to the OECD average, which was $12,911 USD. Residence of high-tax, high-benefits countries like Norway, in contrast, pay rates of over $30,000 USD.

What Australians get for their taxes

A recent United Nations study ranked Australia to have the second best quality of life in the world, after accounting for "three basic dimensions of human development": life expectancy at birth, mean and expected years of schooling and standard of living, which was measured by income. In the same study, the U.S. came in at No. 8.

There are a number of reasons for that contrast. One is Australia's effective, accessible health care system, which even President Trump has praised.

It is single-payer, which means "a public agency handles health care financing while the delivery of care remains largely in private hands." Under this set up, the Australian government can pay significantly less than what U.S. residents pay, while still offering effective treatments.

According to the OECD, in 2016, Australia paid 9.6 percent of the nation's GDP on health care, while the U.S. paid over 17 percent. The per capita health spending in the U.S. is over $9,000. In Australia, it's under $5,000.

OECD (2017), Health spending (indicator). doi: 10.1787/8643de7e-en (Accessed on 26 October 2017)

The Australian medical system is not without its issues. As is the case in many countries, affluent people have more and better access to care. The life expectancy of indigenous populations is approximately 70 years of age, whereas for non-indigenous citizens it's 84. And, like the U.S., the country also has a rising population of seniors that may require policy changes to be appropriately dealt with.

Still, among 11 high-income nations, the Aussie health care system ranked second in the world, just behind the United Kingdom's, while the U.S.'s system is ranked 11th, or last, according to a report from the Commonwealth Fund.

The quality of life in Australia is also boosted by programs that directly benefit average families, such as paid leave. New parents get 18 weeks of time off. The U.S., meanwhile, is the only developed country in the world that does not guarantee any paid leave.

The country also boasts a more generous system of income-based student loan repayments for college grads. "In Australia, graduates don't have to start making payments for their college educations until they reach a salary equivalent to $39,152, at which point they're charged 4 percent of their total earnings," The Atlantic reports.

This way, if you don't find a job with a decent salary immediately after college, you don't have to worry about paying your loans back yet. Nor do you have to worry about paying interest.

"By contrast, in most of the American plans, income-based repayments typically kick in at $17,820 — and take a minimum of 10 percent," according to The Atlantic. Plus, students do pay interest, and it usually compounds.

The result in the U.S. is a $1.3 trillion debt crisis that is only getting worse. In 2016, the average American college graduate left with $37,172 in debt, 6 percent more than the previous year, reports Rolling Stone.

What Americans get for their taxes

Americans enjoy a strong national defense. Of all discretionary spending in the U.S., the military counts for about half.

At $611 billion in 2016, the Peterson Foundation points out, this is more than the next eight countries combined. Australia spends around $30 billion a year on defense, or about 6 percent of its budget.

The U.S. also spends a significant amount on health care and benefits for some of its citizens. In the fiscal year 2016, the Pew Research Center reports, "The federal government spent just under $4 trillion, and about $2.7 trillion – more than two-thirds of the total – went for various kinds of social insurance (Social Security, Medicaid and Medicare, unemployment compensation, veterans benefits and the like)."

Many of the programs covered by discretionary spending are intended to help the most vulnerable. These include "the early childhood education program Head Start (included in Housing & Community), Title I grants to disadvantaged schools and Pell grants for low-income college students (Education), food assistance for Women, Infants and Children (WIC), training and placement for unemployed people provided by Workforce Investment Boards (in Social Security, Unemployment and Labor)," reports the National Priorities Project.

In fact, when it comes to cash benefits — meaning old-age and disability pensions, family payments and allowances, government-funded paid parental leave and unemployment benefits — the U.S. spends more, proportionally, than Australia.

"Australia was the 6th lowest spender on cash benefits in the OECD, spending 8.4 per cent of GDP, with the only countries spending less mainly being lower income like Mexico, Chile and Korea," says Coates. "In contrast, the United States spends 9.1 per cent of GDP on cash benefits."

The countries, however, distribute those benefits differently. Australia does a better job at directing resources to the citizens who need them.

How Australia uses revenue differently

"Australia has the most tightly targeted tax transfer system in the world," says Coates. "Over 40 percent of income of cash benefits are paid to the bottom 20 percent of income earners in Australia, compared to around 3 percent paid to the top 20 percent of income earners."

"In contrast, in the U.S., just 20 percent of cash benefits are paid to the bottom 20 percent," says Coates, "whereas the top 20 percent receive around 15 percent of all cash benefits."

OECD (2014), Percentage of public social benefits in cash paid to the lowest and highest quintiles, total population, OECD countries, 2011

To ensure that benefits are being apportioned fairly, Australia uses "means-testing" — a fancy way of saying the richer you are, the less you qualify for support, whether it be in the form of old age pensions or family allowances. "In Australia, close to 80 percent of government cash benefits are means-tested, compared to 27 percent in the U.S.," says Coates.

This tax transfer system has an equalizing effect on the Australian economy. In the U.S., both the rich and the poor receive considerable portions of the government's redistributed revenue. In Australia, the rich see only a little and the poor receive a lot.

Despite the fact that so much federal spending in the U.S. goes to cash benefits, more Americans are poor and inequality is worse. According to the OECD, Australia's relative income poverty rates, or "the share of the population with an income of less than 50 percent of the respective national median income," was 12 percent in 2015. The U.S. rate was 17 percent.

Consider another measure: Gini Coefficients, a globally accepted indicator of wealth distribution. With a score of 0, a country would have perfect equality, and with a score of 1, perfect inequality.

In 2014, Australia's was 0.33. The U.S.'s was 0.39. "That [difference is] actually quite a lot," says Coates.

The big picture

Ultimately, Australians pay more in taxes than Americans, but, relative to other high- and low-tax countries in the OCED, not by much. The real difference is in how that revenue is spent. Low- and middle-income Australians seem to see a lot more concrete return for what they give the government, which might explain why they are less bothered by the giving.

And, of course, the proposed GOP tax reform would further change how these countries compare. As CNBC reports, "it could be the biggest rewriting of the system in decades."

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