Advancing fair out of Australia

SYDNEY - Stephen and Donna McWilliams are giving Australia a big headache.

Nine years ago, they left their native Perth to live in Singapore, attracted by the city-state's lower income taxes.

Between higher salaries and less tax, they are taking home 50 per cent more than they would have in Australia - enough to let them retire before they are 40.

"We would never dream of earning this much at home," said Donna McWilliams, 30, a mother of two. "We came here because the tax rate is so low."

Alen Tyler, a labour economist at the Australian National University in Canberra, said tax refugees such as the McWilliams - Stephen is a lawyer, Donna a dental nurse - were costing Australia A$4 billion ($4.7 billion) a year and contributing to a "brain drain".

So critical is the issue that the Government is facing calls to cut the top income tax rate to 30 per cent from 47 per cent.

Department of Foreign Affairs and Trade figures put the number of Australians working abroad at 861,878, up from 705,000 a decade ago.

Australia is not alone in its brain drain - the loss of talent in New Zealand could be even greater with more than 400,000 people born in that country now resident in Australia. They generally give their reason for leaving as higher wages - generally about 30 per cent more in Australia.

In February, Australian Treasurer Peter Costello appointed Caltex Australia chairman Dick Warburton, 68, and Peter Hendy, 44, chief executive officer of the Australian Chamber of Commerce and Industry, to review the country's tax system. They are due to report the results today.

Politicians and executives are pressuring Costello to use some of the estimated A$11.5 billion budget surplus to cut taxes. Tax revenue has almost doubled to A$202 billion in the 10 years since Prime Minister John Howard, 66, won office.

Hendy said recently: "There has been a genuine issue about tax and a brain drain. This will be looked at as part of the review as we compare tax systems from different countries."

Hendy and Warburton have been comparing Australia's tax system to other members of the Organisation for Economic Co-operation and Development and to low-taxing neighbours such as Singapore and Hong Kong.

They have taken into account the total tax burden, which includes a 10 per cent sales tax on most goods and services, a 1.5 per cent levy on high-income earners to help fund the national health care system, and state government fees on transactions ranging from buying a home to registering a car. Australia's highest 47 per cent tax rate kicks in at A$95,000 a year.

In the US, the top federal tax rate of 35 per cent applies to people earning more than US$326,450. State income taxes range from zero in nine states, to as high as 10.3 per cent in California on incomes of more than US$1 million.

Australia has the ninth-highest top personal income level of OECD nations, behind Denmark, Sweden, France, Belgium, Finland, the Netherlands, Japan and Austria.

A 2004 survey of 450 Australian expatriates by the Victorian Endowment for Science Knowledge and Innovation found 32 per cent of people were attracted by a higher income with one-third of respondents earning more than A$310,000 a year.

"The high rate of income tax counts against Australia in attracting and retaining skilled workers from overseas and luring home Australians who have left to work overseas," Business Council of Australia president Michael Chaney said.

The council, an association of CEOs of Australia's top 100 companies, who employ one million people and produce 30 per cent of the nation's exports, has called on the Government to keep a "permanent watch" on the tax system to make sure it remains internationally competitive.

Craig Marran, 38, at National Australia Bank in Hong Kong, said he would not consider returning to Australia until taxes were cut.

"It would have to be a big tax cut for me to come home," said Marran, who, like the McWilliams, saw his earnings rise 50 per cent.

"I'm paying 15 per cent here compared with as high as 47 per cent in Australia. That speaks for itself."

Hendy said cutting the top tax rate to 30 per cent might help to draw high- income earners, but it would not happen overnight.

The Labour Party's deputy leader, Jenny Macklin, said: "There'sno reason for our skilled workers to come back because it's like taking an instant pay cut when you get off the plane. The Government is swimming in money and it's time to encourage workers back to an economy that'sin dire straits on skills."

GREENER FIELDS

* 861,878 Australians are working abroad, up from 705,000 a decade ago.

* Their loss to the economy is estimated at A$4 billion.

* Most give high taxes as their reasons for leaving.

* There have been calls to cut the top income tax rate from 47 per cent to 30 per cent.

- BLOOMBERG