A Look Inside Australia’s Education, Investment, Tax, Healthcare & Retirement System
You’ve heard about Bondi Beach, the Great Barrier Reef, Elle McPherson and the Australian Open. You know that Australia has a great “walkabout” culture where college graduates take a gap year to go explore the world and expand their horizons. As far as you can tell, Australia is a wonderful land down under!
Unless you’ve been to sunny Australia, everything is hearsay. I’ve never been, but fortunately for all of us, Shaun from Money Cactus is a regular reader who hails from Australia and has decided to provide some insights into what it’s really like living and working in Australia.
One of my friends from San Francisco moved to Sydney five years ago and he loved it so much he decided to start a business there and become an Aussie citizen! After looking more into the Australian healthcare and social safety net system, there’s no wonder why people love Australia! In fact, I might consider retiring there myself if they have me. Then again, why would they since I haven’t paid any of their taxes!
Here’s Shaun’s perspective on Australia. For other Australian readers and those who’ve spent some time there, please feel free to share your thoughts as well!
Australian Boom: Where The Money’s At
Fortunately things still seem to be moving in the right direction for most of Australia, particularly if you have a skill that is suited to the mining industry. Australia is going through a mining boom right now and there is some serious coin to be made, even truck drivers are pulling down 100k plus and all they need to be able to do is drive in a straight line! There is even bigger money to be made for qualified trades people, so unsurprisingly everyone wants a job with a mining company at the moment. We are talking $150,000-$300,000 jobs!
Other industries (like manufacturing) aren’t fairing quite as well and our exports are suffering due to a strong Aussie dollar, but online shopping has definitely exploded as a result. Australia is pretty under-serviced in the online retail market, so I think that there is a lot of potential in this space at the moment too.
Australian Schooling System
The education system in Australia is very similar to America. Once kids get through school they might choose to go to university (college in the states), or undertake vocational training (similar to a community college I guess). The big difference is the cost of tertiary education. We are pretty lucky really, I’ve heard about the cost of college in America and it sounds pretty scary!
Rhe cost of college in Australia isn’t nearly as terrifying. Depending on your area of study, you could be looking at 15k-20k total in fees over 3-4 years. Sure it hurt a bit paying back my debt, but not nearly as bad as it would if it was 15k-20k per year. I think that this is a really significant difference as far as your personal finances are concerned, a huge financial burden early in life can have a big impact on your ability to save and invest.
My tertiary education tip? If you can afford to pay up front, come to Australia to study. Our university fees are lower and you get to experience a great part of the world at the same time.
Australian Tax and Retirement System
Australian tax laws aren’t too dissimilar to those in the USA, but there are a few little differences. The tax system in Australia is administered by the federal government and is quite comprehensive, which basically means they generally take more than they should (before deductions are factored back). Tax is paid directly by your employer with each pay cycle and while it is possible to arrange a variation based on your deductions, most Australians file for a tax return at the end of the financial year (June 30).
I’ve really liked some of the tables that Sam has put together lately, so I’ve got one for you too. The table below compares the tax rates and income thresholds for individuals in Australia and the USA (all figures taken from Wikipedia). There are some other levies to factor in here, like healthcare or any state taxes but this is good as a general guide.
It is worth pointing out that in both situations an individual pays tax at a given bracket only for each dollar within that bracket’s range. So if you earn $37,500 in Australia as a resident, then you pay no tax on the first $6,000, then 15% on the amount between $6,001 to $37,000 and finally 30% on the last $500.
One big benefit I think we do have here in Australia is compulsory employer contributions to employee retirement funds (we call it superannuation). This runs at 9% of your wage as a minimum, but some employers pay more. It is pretty nice having a mandatory systems that helps to ensure you have some funds available when you retire, but as you would expect, it doesn’t add up to much unless you contribute a lot more for retirement yourself. We also have some pretty stringent laws that govern the way this money can be invested and when you can access it, but most people invest in a diversified portfolio through a superannuation fund provider and get access to it at the age of 65.
Australian Public and Private Healthcare
Medicare is the Australian public health service, which provides residents with subsidised treatment from their local medical practitioners (around 75%), and fully subsidised treatment in public hospitals. The system is means tested but essentially available to everyone (higher income earners incur a levy of 1%). While this is a pretty good deal, close to 50% of Australian citizens also have their own private cover as it is more comprehensive, provides greater choice and generally covers a portion of the charges generally referred to as ‘extras’ such as dental, optical, physiotherapy, elective surgery etc.
The Australian health care system is by no means perfect, we have some very long waiting lists for surgeries and often a lot of crowding at hospitals, but I think we are still pretty fortunate to have access to ‘free’ care no matter what you do or how old you are.
Aussie Personal Investments
One of the biggest differences I’ve noticed from a tax perspective between Australia and the USA is that you can deduct your home mortgage interest in the States, but you can’t deduct your home mortgage interest in Australia. On the bright side, we in Australia pay no capital gains whatsoever on the sale of our primary residence. Furthermore, we can deduct the interest expense on our commercial and residential investment properties.
Capital gains tax is paid on 50% of the profit of any investment sold, the rate applied is the same as the individual tax rate after the profit is added to your income. Unfortunately we don’t have anything similar to a section 1031, so if you sell an investment property you will end up paying at least some capital gains tax.
Australia Ain’t That Bad At All Mate
So there you have it, a brief contrast of the more obvious differences that I have noticed and those that could have a pretty significant impact on your finances depending on where you live and how you handle things. Hopefully I’ve mentioned something in here that has caught your interest and will get you investigating your own personal finances a little more closely. If not, I suggest you start saving for a holiday ‘down under’ and experience a little more of Australia for yourself.
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