A Look Inside Australia’s Education, Investment, Tax, Healthcare & Retirement System

Australian CurrencyYou’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.

Australian vs. USA Income Tax Comparison

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.

Recommendation: For the most competitive health insurance rates online, I recommend eHealthInsurance.com. eHealthInsurance is the largest online retailer of health insurance and they are based right here in the Bay Area. You can check for a personalized no obligation quote for you and your family. They are great for those in between jobs, unemployed, or who are entrepreneurs. It’s important everybody gets at least basic minimum coverage to avoid financial disasters. The Affordable Care Act website has proven to be expensive and cumbersome once again.

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I’ve been there and even got to interact with work colleagues while we were there (we got sucked into some work stuff once they learned we were coming on holiday). Australia is great from a quality of life standpoint, but here are a couple of the downsides I see. The Australian economy is much much smaller than the US, so as a result, there are just not as many opportunities for employment and there aren’t as many large employers there. Where we may have 14,000 customers in the US, Australia is more like 500-1000. It’s at least an order of magnitude smaller for my sector. I think it’s a great place for an entrepreneur because there just isn’t as much competition there.

    Australia still imports a lot of stuff, so cost of living is higher in general. Also, I found that the cost of housing relative to ones salary is also a lot higher in Australia. Home ownership seemed pretty expensive out there. I looked at real estate fliers in every place we visited and it was much more expensive across the board vs a similar sized city or tourist area in the US. It’s been about 7 years since I’ve been there though so my info is a little dated. I’d be curious to know if it’s still about the same though.

    • says

      All very good points, unfortunately the cost of living (and housing) has only got worse in the last 7 years. We definitely suffer from a small economy and while less competition might be good for entrepreneurs, it isn’t too good for consumers so we tend to pay a lot for goods and services. Being an island continent does have its advantage, but it has a few disadvantages too.

  2. says

    That is extremely interesting! Americans constantly complain about our “high” taxes but in reality our taxes are at all-time lows. It’s amazing to see how high the taxes are in Australia…but maybe that’s why they’re in a better financial state than the US?

    That retirement benefit of 9% of your salary is amazing!! I don’t know if they’ll ever adopt that here but it would certainly be nice to see. :)

    The healthcare thing has its pros and cons. It’s nice to have free care but it is definitely a downside to have to wait for surgery. A lot of Canadians come to the US because the wait up there is extremely long as well.

    • David M says

      You are correct that as a percentage of GDP our taxes are at a least a recent history all-time low. HOWEVER, if I had to guess – I would say less than 10% of all Americans know that.

      With all that we spend on healthcare (and the little we get from all those $) it is no wonder that we are running HUGE budget deficits!!!!!

  3. says

    I went there once. I was strip searched in the middle of the airport. That’s a whole different topic.

    I find the Aussie are very intelligent people. I meet so many that come from there and they are just on top of their game. Also I use Market Samurai and have done The Challenge and the creators both come from Australia. Aslo I am with WSL I wouldn’t want to wait being that it’s free care.

  4. says

    I loved reading this! I’ve had friends who have moved to Australia for awhile after school finished. They had a much higher wage doing the same jobs there as they would get here, and they really enjoyed it.

    WorkSaveLive – I’ve never heard of a Canadian going to the states for surgery because of the wait. Is it specific to a type of surgery? My uncle is going for surgery on a brain aneurysm (it hasn’t burst or anything) and has only had to wait for 2 weeks. Maybe that’s a long time, I’m not sure, but it doesn’t really seem like it.

  5. says

    Mate, thanks for sharing your thoughts again.

    I LOVE to see that 45% tax rate on income above $180,000! Those are some big time taxes! Hence, is it possible to retire in Australia if I haven’t spent my life paying those taxes? I hear it’s a little onerous, but my friend did it after 5 years.

    Every Aussie I meet has been super chill. They know how to “take the piss” and have a great time. Is it my sample set that’s off, or are Aussie folks really that laid back? At least the ones who travel.

    Ever been to Melbourne? On my bucket list to go for the Aussie Open!

    • says

      Sure you can retire here, there are no laws against letting people live here if they haven’t paid Australian taxes all their lives. getting permanent residency can be a little tricky at times, but not impossible.

      Most Australian’s are pretty relaxed generally, it is part of our culture, as is having a joke with your mates. I don’t think you would find too many Australian’s that weren’t quite friendly and willing to help out if you need some advice if you ever visited.

      I live in Adelaide (the capital of South Australia), but Melbourne isn’t far away. Melbourne is a lot busier and generally thought to be a little more refined… but it depends which state you live in!

  6. says

    Hmmm, higher taxes, but better quality of life! Interesting dilemna Although not a PF issue, they have a very high election participation. Everyone votes! I think there is a law that requires everyone to vote. I would love to see a higher particpation in the election process in the U.S.

      • says

        I believe th eonly way you lose your right to vote is if you are a convicted felon. To answer your question, you would lose your right to vote if you were convicted of tax evasion.

        • says

          Even prisoners can vote if they are serving a sentence of less than 3 years and even those that serve longer sentences can vote once released.

          If you dont pay taxes, then there is a chance you will end up in jail. The Australian tax office is pretty agressive on auditing tax returns and looks very unfavourably on people not paying their taxes.

    • says

      Voting is mandatory in Australia if you are a citizen and once you register (if you don’t register, then you don’t have to vote). Most people are quite interested in being involved in the process. If you don’t vote, then you can be fined.

  7. says

    I wouldn’t mind paying that kind of tax to get heath care. Like you said, if you’re wealthy, you can get additional private heath care or fly to Thailand for surgery, right?
    Do you have state tax, VAT, or sales tax there? This usually bring up our tax liability in the US another 5-10%.
    I visited Sydney, Melbourne, and NZ North Island a few years ago and I really like the quality of life. NZ is much more relaxed, but the economy is a lot smaller than Australia right?
    ps. I found a few packets of Marmite left over from the trip and they are still edible. :)

    • says

      There really isn’t a wait for emergency surgery. There can be delays for elective surgeries, even those that might improve your health like hips, knees etc. but the public system is really very good. If you take private cover, then there would be no waiting, but some people aren’t too keen to pay for something that they might not need and can effectively get for free.

    • Financial Advice for Young Professionals says

      I like the idea that everyone is covered for simple basic things and if you’re rich you can pay more for private insurance. That’s how it should be. All of the medical advances we have today are born from monetary incentive, right? MRI machines are freaking expensive! You should have to pay more for this as opposed to an X-ray which is more basic these days.

  8. says

    Very cool insights on Australia! I have a friend who is a doctor and she went to medical school in Australia and saved a ton of money in the process. She also really enjoyed living there and would have stayed if it wasn’t for her family back in California. I have yet to visit NZ or Australia and really hope to someday soon.

  9. Financial Advice for Young Professionals says

    I haven’t been to Australia, but I know many who have and I work with quite a few Aussie aerospace engineers. They are all pretty smart and cool dudes!

    I definitely think its easier to provide better services and have higher efficiency in a smaller economy like Australia. The US has over 300 million people! Wow! Just like in business, as companies get bigger and bigger they become more efficient. That being said, the US must still be doing something right because most of the Aussies are coming here to work and not the other way around.

      • says

        For Singapore, we only hit 20% tax rates for income in excess of SGD 320,000. After averaging it all out, a 100K income is taxed perhaps about 6% if no deductions are considered. A 200K income without deductions is taxed at 10%.

        VERY Low.

        But the government is very good at finding extra money from other places.

        • says

          Oh, WOW!!!! 6% effective tax rate on 100K in income is salivatingly AMAZING! But that’s 100K SGD and not USD right?

          Any idea how easy it is for a foreigner to retire and collect benefits in Singapore?

  10. James Brian says

    The comparable tax rates are misleading for an overall picture. They only compare federal to federal tax rate.

    Australia has no state income tax, so someone is California or another high tax state is paying more in Fed and State combined than at the top rate in Australia.

    Companies pay a payroll tax on their wages of 4.75% over a certain amount of payroll, this is paid to the state.

    And the retirement of 9% is still less than combined social security paid by the employee and employer. This is basically a 401k type of fund where the finds are invested, not put into an “off balance sheet” like Social Security.

    Overall, the US vs Australia net out.

    • says

      Living in California is probably a close wash. Living in one of the 7 no income tax states in the US and then it’s cheaper. And if one makes a ton of money eg $500,000++, then it is way better to live int he US for tax savings.

  11. Michael says

    The US federal income tax rate is lower than in Australia, but the US has other taxes. When these are taken into account, Americans pay higher taxes.

    (1) State income tax, which in most states are 4-9%.

    (2) Property tax, which is usually 1-1.5% the assessed value of a property.

    (3) Bonus tax. The federal rate is 25% on every dollar of bonus income. Some states have bonus tax as well.

    (4) Payroll tax (5.8% on every dollar of income). Payroll tax consists of Medicare and Social Security. US Medicare pays for hospital care and some other healthcare for people over 65. SS pays about $1,000 a month to people over 65.

    Healthcare and college education cost far more than any other country. In a lifetime, most Americans pay well over half of their income into taxes, healthcare, and college tuition. There is a saying, “Born free – taxed to death.”

    (I am definitely moving to Australia or Singapore within a few years.)

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